Healthcare News of Note: Department of Justice files formal challenge to UnitedHealth Group’s proposed acquisition of Change Healthcare

• To the relief of hospital advocates, the U.S. Department of Justice announced it would challenge UnitedHealth Group’s planned acquisition of Change Healthcare Inc.
• Up to $265 billion worth of care services for Medicare fee-for-service and Medicare Advantage beneficiaries could shift to the home by 2025.
• A study says a key metric indicating the level of community benefit provided by nonprofit hospitals is poorly aligned with the tax subsidy that those institutions receive.

Over the last few weeks, I have found these industry news stories that should be of interest to healthcare finance professionals.

1. DoJ files suit to stop a proposed $13 billion merger between UHG and Change, citing anticompetitive effects in the commercial insurance and claims processing markets

Hospital advocates applauded a Feb. 24 announcement by the U.S. Department of Justice (DoJ) that it would seek to block UnitedHealth Group’s planned acquisition of Change Healthcare Inc.

DoJ said it was joining with the attorneys general of Minnesota and New York to challenge the move, alleging that the proposed $13 billion transaction would harm competition in both the commercial insurance and claims processing technology markets.

In a complaint filed in a Washington, D.C., federal court, DoJ stated that anticompetitive aspects of the transaction include:

• Giving UnitedHealthcare broad access to competitively sensitive information of other insurers through Change’s first-pass claims editing solution and electronic data interchange (EDI) clearinghouse
• Enabling UnitedHealthcare to raise the costs of its rivals, such as by denying or delaying access to innovations that would allow for greater efficiency in claims processing
• Eliminating competition between UnitedHealth Group’s subsidiary, OptumInsight, and Change in the first-pass claims editing solutions market, in which the two organizations have a combined share of at least 75%

DoJ said the last point renders the transaction “presumptively unlawful” based on Supreme Court precedent and guidelines for mergers between competing firms.

Reaction to the challenge

When the transaction was announced in January 2021, the American Hospital Association (AHA) called for DoJ to investigate the acquisition. AHA said the acquisition would “reduce competition for the sale of healthcare information technology to hospitals and other healthcare providers,” with negative implications for both consumers and providers.

In addition, “the combination of the parties’ data sets would impact (and likely distort) decisions about patient care and claims processing and denials.”

After the DoJ’s Feb. 24 announcement, the AHA voiced its support.

“Challenging this proposed combination was the right thing to do to prevent untold competitive harm for patients and healthcare providers,” Melinda Hatton, general counsel with AHA, said in a written statement.

The parties to the proposed deal pledged to continue to pursue the transaction.

“The Department’s deeply flawed position is based on highly speculative theories that do not reflect the realities of the healthcare system,” UnitedHealth Group stated. “We will defend our case vigorously.”

Change stated, “We are aware and disappointed that the DoJ has filed litigation to prevent Change Healthcare from closing our merger with UHG. We will continue our support of UHG in working toward closing the merger as we comply with our obligations under the merger agreement.”

— Nick Hut, HFMA senior editor

2. 25% of the total cost of care for Medicare FFS and MA beneficiaries could shift from traditional facilities to the home, McKinsey & Company report says

Up to $265 billion worth of care services for Medicare fee-for-service (FFS) and Medicare Advantage (MA) beneficiaries could shift to the home by 2025, according to a Feb. 1 article by McKinsey & Company.

“What’s more, Care at Home could create value for payers, healthcare facilities and physician groups, Care at Home providers, technology companies, and investors,” the authors wrote. “It also could improve patients’ quality of care and experience.”

According to the authors, the $265 billion represents up to 25% of the total cost of care for Medicare FFS and MA beneficiaries and “could shift from traditional facilities to the home by 2025 without a reduction in quality or access.

“That number represents a three- to fourfold increase in the cost of care being delivered at home today for this population, although how the shift will affect reimbursement rates is not yet clear.”

The article is based on responses to a survey of 70 physicians who care primarily for Medicare FFS and MA beneficiaries.

3 groups of services that can be delivered at home

The article noted services that can be delivered at home were divided into three groups:

1 Services with capabilities in place that may benefit from scaling: 

• Primary care
• Outpatient-specialist consults
• ED and urgent care
• Hospice
• Outpatient mental- and behavioral-health visits

“Many of these services have seen an increase in usage during the COVID-19 pandemic,” the authors wrote. 

2 Services where capabilities exist that could be stitched together into a comprehensive offering: 

• Dialysis
• Post-acute care
• Long-term care
• Infusions

3 Services with some capabilities but other capabilities that could be further developed:

This category includes a single service: acute care. 

“Our survey results suggest that roughly 20 to 30 percent of additional Medicare FFS and MA spending for acute care can be delivered at home,” the authors wrote. “Some acute-care services can be treated at home today, but others rely on capabilities that require further technological advancement.”

3. Study: Is a reevaluation of nonprofit hospitals’ tax subsidies needed?

“The largest component of community benefit supposedly provided by nonprofit hospitals” —unreimbursed Medicaid costs, net of supplemental payments — “is poorly aligned with the (effectively automatic) tax subsidy that these institutions receive,” according to an article published Feb. 14 in JAMA Network Open.

“In this economic evaluation, nonprofit and for-profit hospitals had similar unreimbursed Medicaid costs as a share of expenses,” the study authors wrote. “In half of the 45 states in which both nonprofit and for-profit hospitals operate, nonprofit hospitals had a lower weighted mean unreimbursed Medicaid cost to expense ratio than for-profit hospitals — but only nonprofit hospitals receive a sizeable tax subsidy.”

The study authors used 2019 Medicare cost report data to obtain information on self-reported unreimbursed Medicaid costs. The sample contained 3,446 private hospitals, including 2,617 nonprofit hospitals and 829 for-profit hospitals. 

Study highlights

The study highlights include:

• The 3,446 U.S. private hospitals in the study’s data set incurred $20.59 billion in unreimbursed Medicaid costs, representing 2.52% of their total expenses.
• Nevada hospitals had the highest weighted mean ratio of unreimbursed Medicaid costs to expenses (7.74%)
• States with the lowest ratios were Maryland (0.02%), Utah (0.07%) and Alabama (0.14%)

“Policy makers should do more to address these issues, including providing greater transparency about the magnitude of the subsidies received by nonprofit hospitals and establishing a more direct nexus between these subsidies and the performance of those facilities in providing community benefit, whether in the form of unreimbursed Medicaid costs, charity care, or some other measure,” wrote the authors.

HFMA bonus content

Register for HFMA’s 2022 Revenue Cycle Conference, March 16-18 in New Orleans.  

Review the online version of the February issue of HFMA’s hfm magazine. The cover story is about how HFMA’s cost effectiveness of health initiative addresses the factors that impede health quality and raise healthcare costs. 

Listen to the Voices in Healthcare Finance podcast episode, “How fried chicken is doing social good in Ohio, and what that could mean for the healthcare industry.” In this episode, HFMA President and CEO Joe Fifer interviews Joe DeLoss, a social entrepreneur and the owner of fast-casual restaurant Hot Chicken Takeover, about how the healthcare industry can create social good from the inside out.