Greetings! We appreciate you joining us for another edition of the Gist Weekly. Please feel free to forward this edition to friends and colleagues, and encourage them to subscribe as well.
In the News
What happened in healthcare recently—and what we think about it.
- OHSU and Legacy sign definitive merger agreement. Late last week, Oregon Health & Science University (OHSU) and Legacy Health, both not-for-profit health systems based in Portland, OR, shared that they had signed a definitive agreement to merge after first announcing their intent to combine last August. The combined system would be the largest in the Portland region, with 12 hospitals and a total annual revenue of about $6.6B. As part of the deal, OHSU has promised to invest about $1B over ten years to upgrade Legacy’s facilities. The systems are expected to apply this summer for review by Oregon’s Health Care Market Oversight Program, which was established in 2022 and has the authority to deny or attach conditions to healthcare mergers in the state.
- The Gist: If finalized, this merger would connect OHSU’s academic medical center to Legacy’s network of community hospitals and clinics, as well as secure Legacy a needed capital infusion. Next steps include review by both federal regulatory agencies and Oregon, which is among a growing number of states to implement M&A oversight laws (for more on state-level healthcare M&A oversight, see our graphic below).
- Dollar General ends mobile health clinic pilot. Discount retail giant Dollar General announced late last week that it will end its mobile health clinic pilot program, run in partnership with mobile medical care provider DocGo. Launched in Jan. 2023, the mobile clinics provided basic healthcare services—including annual physicals, vaccinations, urgent care, and lab testing services—several days per week outside three Dollar General stores near the company’s Goodlettsville, Tennessee headquarters. A Dollar General spokesperson said that ending the mobile clinics program was a mutual decision between Dollar General and DocGo and did not provide additional details on the decision.
- The Gist: Dollar General’s small healthcare delivery pilot received significant attention when it was announced, due to the retailer’s extensive footprint in rural and medically underserved areas. Although the discount retailer never touted a healthcare strategy on the scale of Walmart or Walgreens, which have each also walked back their healthcare delivery ambitions this year, Dollar General did hire a chief medical officer in 2021, and many thought that this pilot could be the company’s first step toward broader healthcare delivery. Instead, Dollar General’s role in improving the health of rural Americans for now remains limited to its retail offerings: it continues to expand its DG Fresh initiative, now selling fresh produce at more than a quarter of its 20K locations, and its DG Wellbeing section, which now accepts supplemental health benefits for its selection of more than 300 over-the-counter medicines and supplements.
- House subcommittee focuses on need for 340B transparency. On Tuesday, health system leaders testified before the House Energy and Commerce Subcommittee on Oversight and Investigations about potential changes to the 340B Drug Pricing Program. The committee was receptive to witnesses’ claims that the program is essential to the financial survival of many systems, but representatives stated that “the status quo is not acceptable” and that they had a responsibility to “step in and provide oversight.” There was little interest expressed in broad overhauls to the program, but both witnesses and representatives focused on how it could benefit from greater transparency, for example requiring hospitals to disclose 340B revenue, how savings are used, and which patient populations are served through the program. Meanwhile, Republicans and Democrats in both houses have introduced multiple bills this session that focus on various aspects of the 340B program, including transparency.
- The Gist: It’s encouraging to see members of congress recognize how essential the 340B program is to health system finances, and of the potential reforms on the table, increased transparency is a relatively palatable option. Congress is exploring statutory tweaks to the program in response to the myriad legal challenges concerning it, many of which involve the Department of Health and Human Services. Several of these lawsuits stem from more than 20 major drug makers restricting 340B discounts at contract pharmacies, which has led multiple states to enact legislation protecting these discounts, in turn prompting further lawsuits. The mess of conflicting rulings these cases have produced so far is a clear sign that the 340B statute will be amended, and health system advocates should continue working with Congress to find solutions that preserve the integrity of the program.
Plus—what we’ve been reading.
- Hospital at home programs at a critical juncture. Published in Health Affairs last month, this piece explores the history of hospital at home (HaH) programs and examines some of the barriers currently limiting their growth. HaH programs were introduced in the US back in the 1990s but remained rare due to a lack of reimbursement. That changed in 2020 when the Centers for Medicare and Medicaid Services (CMS) introduced the Acute Hospital Care at Home waiver, which allows fee-for-service Medicare reimbursement for providing inpatient-level care at home, prompting the number of HaH programs nationwide to swell from about 20 to more than 320 today. Although early findings from this initiative have been positive, the future of many of HaH programs is in doubt, as the waiver is set to expire at the end of 2024, barring congressional action. The authors argue that making the Medicare waiver program permanent is essential to overcome HaH’s “common agency problem,” which prevents many hospitals from building out their home-based programs to scale if they cannot receive reimbursement for all eligible patients.
- The Gist: The Medicare waiver program has incubated many new HaH programs, but most of these programs remain very small; even for systems with the most robust programs, HaH volume only represents a sliver of their total inpatient volume. Without guaranteed fee-for-service Medicare reimbursement, the average health system will find it difficult to devote the significant resources and investment that program creation and expansion requires. If Congress moves to make the waiver program permanent, or at least extends it for several more years, state Medicaid programs and private payers may be more incentivized to follow suit and provide reimbursement for the care model. Although legislation has been introduced to this end in Congress, action on this front in an election year is going to be challenging.
Graphic of the Week
A key insight illustrated in infographic form.
Many states now scrutinizing healthcare consolidation
This week’s graphic looks at the plethora of state-level mergers and acquisitions (M&A) oversight laws that are now in place, part of a recent trend that adds further scrutiny to healthcare consolidation. Thirty-five states currently have laws that require not-for-profit healthcare entities that meet certain requirements, usually based on revenue size, to report M&A activity to state regulators. Fourteen of these states extend these requirements to for-profit healthcare entities as well. These state laws vary in scope but generally target healthcare deals that fall below the federal reporting threshold for transaction size, updated to $119.5M in 2024. Two states with particularly strong healthcare M&A oversight laws are Oregon and Minnesota. The Oregon Health Authority must pre-approve any healthcare transaction of at least $35M in size. Passed in 2023, Minnesota’s healthcare antitrust law sets the deal size reporting requirements at $10M, but the state commissioner of health and the attorney general do not have to pre-approve all healthcare mergers. Minnesota also requires merging parties to disclose extensive details on the transaction agreement, market impact, service cuts, and more to state regulators, who have broad authority to block mergers on public interest grounds. Although some believe that these state laws will help preserve healthcare competition and access, they will increase the complexity, cost, and timeline for healthcare entities seeking to merge and could make survival for smaller providers even more difficult.
On the Road
What we learned from our work in the real world. This week from Geoff Stenger, Senior Vice President, at Kaufman Hall.
Proactively managing counterparty risk across vendors
In the wake of the Change Healthcare cyberattack, I received a call from a concerned health system CEO. “This business with Change has been very eye-opening,” she shared. “I didn’t realize how many services we had tied up with Change until they all got shut off. I want to make sure we have backup plans in place in case any of our major vendors were to have a major issue like this. How should we approach looking into it?”
The first step in assessing counterparty risk is for an organization to take a thorough inventory of all existing vendor relationships, accounting for the dollars of exposure associated with each. Each organization must establish governance and create a framework to assess their vendors on multiple parameters, including on criteria such as concentration of cash flow, critical services touched, and number of subcontractors used (as every additional link in a chain presents a potential vulnerability). This assessment may uncover multiple vendors providing the same types of services to various parts of the organization, which could serve to mitigate single-point-of-failure risk but could also indicate a potential efficiency improvement and cost savings opportunity. After evaluating their vendors, systems should create action items to address potential vulnerabilities, including identifying backup vendors for essential services or opting for alternative vendors with fewer points of exposure. Importantly, counterparty risk management must be monitored and regularly reassessed as it can change over time. If your organization is interested in better managing its counterparty risk, please don’t hesitate to reach out.
On Our Podcast
Gist Healthcare Daily—all the headlines in healthcare policy, business, and more, in ten minutes or less every weekday morning.
In addition to the news discussed above, our Gist Healthcare Daily podcast covered many of the week’s other big stories, including:
- Scan Health Plan wins its Medicare Advantage star ratings lawsuit
- Change Healthcare—not providers—is responsible for patient data breach notifications resulting from its cyberattack
- The FDA approved Moderna’s mRNA vaccine for RSV
To stay up to date, be sure to tune in each weekday morning. Subscribe on Apple, Spotify, Google, or wherever fine podcasts are available.
We’ll see you next week! Until then, please visit our archive if you’d like to peruse past editions of the Gist Weekly.
Best regards,
The Gist Weekly team at Kaufman Hall
