From time to time, someone at HTN writes something that doesn’t fit neatly into our usual formats. Here, Martin commiserates with the state regulators evaluating hospital mergers in the lengthy shadow of the U.S. and Plaintiff States v. JetBlue Airways Corporation and Spirit Airlines, Inc. decision.
A few weeks ago, AdventHealth and Intermountain Health announced a partnership in the form of a joint venture, combining eight of the systems’ hospitals in the greater Denver area, with AdventHealth managing day-to-day operations.
Both systems have struggled financially in the greater Denver area; a market that is dominated by publicly traded hospital operator HCA and regional non-profit UCHealth.
Now put yourself in the shoes of current Colorado Attorney General and the presumptive next governor of the state, Phil Weiser, whose office, according to Colorado Sun reporting, is now “reviewing the terms of the joint venture.” Based on what I’ve shared, principally that (1) the hospital systems proposing to partner are struggling financially in the market, and (2) these systems are not the dominant players in the market today, would you allow the JV to proceed or would you block it?
It’s a legitimately tough call for Weiser, and a question state regulators across the country will be grappling with in a moment of intense headwinds for hospital finances.
Part of why it’s such a tough call is that these are being made in the shadow of Spirit Airlines’ bankruptcy, which followed one of the most closely watched antitrust cases in recent memory: U.S. and Plaintiff States v. JetBlue Airways Corporation and Spirit Airlines, Inc.
It’s easy to Monday-morning quarterback the judge’s call in the case, but reading through the ruling, it’s clear he agonized over the decision. What’s happened happened, and we can’t know how the combined Spirit/JetBlue entity would have fared in the intervening years with jet fuel spikes from the war in Iran and consumer sentiment generally startled. The net effect, however, is that after Spirit’s bankruptcy, we ended up with the same number of airlines we were trying to avoid, while putting JetBlue in a weaker position.
So how should states handle competitive questions like these, as Colorado faces with the proposed AdventHealth/Intermountain JV? There’s risk of further concentrating an already concentrated market whether you say yes or no, and either way, people are going to be angry at you.
I'm not particularly envious of the people who need to make a call tantamount to predicting the future in an incredibly volatile market with all sorts of policy headwinds in the coming years that are already starting to materialize. Take, for example, the operator with the largest market share in Denver, HCA, who shared this in its 2nd quarter earnings release:
During the second quarter, the Company experienced a payer mix shift driven by an increase in uninsured volume, primarily due to patients who lost coverage on the health insurance exchanges. The Company estimates this payer mix shift had an unfavorable impact on income before income taxes of approximately $400 million during the second quarter. This amount includes an increase of approximately $75 million related to the Company’s previous estimate of the first quarter health insurance exchange impact.
If I were in the hot seat for this one, assuming I even had the statutory authority to block the deal1, I think I’d wave it through. The Denver market is decently competitive, graded on the generous curve one has to use when looking at the American health system market, and if I was the Colorado AG looking at the coming storm for health systems, I’d rather have three strong systems than four or five which could quickly become two with a spike in uncompensated care, changes to the Medicaid funding from the OBBBA, and persistent wage rate increases above inflation.
Given the general sentiment towards health systems at the moment, I think it would be an incredibly brave move for Phil to make, especially in an election year, and I wouldn’t fault him for going the other way. As Judge Young said in his decision, quoting Yogi Berra or possibly Niels Bohr, “It’s tough to make predictions, especially about the future.”
1 Ironically, the state senate failed to pass a bill earlier this year, SB-26-041, which among other things would have prohibited “a material change transaction if the material change transaction may substantially lessen competition or tend to create a monopoly or may harm consumer welfare” for medical care entities.
