President’s Executive Order Could Bolster Healthcare Competition in Virginia

by James C. Sherlock

Yesterday President Joe Biden issued an executive order (EO) on competition that has the potential to significantly affect Virginians, especially our monopolized regional healthcare markets. 

While an EO does not have the force of law, the president as chief executive can set priorities. The executive departments will honor the EO where not barred by law.  

Federal judges appropriately will not be influenced by an EO. However, EOs put the hand of the chief executive on the scales of executive department prosecutorial decisions and regulatory actions. That will affect the cases that the the Federal Trade Commission, the Justice Department, and the targets they bring before those judges.

In the healthcare sector, a White House Fact Sheet indicates that the EO “tackles four areas where lack of competition in healthcare increases prices and reduces access to quality care.” Those are prescription drugs, hearing aids, hospitals and health insurance.  

There is already fierce competition in the pharmaceutical industry. I consider the prescription drug portions of the order a threat to future drug development, but President Biden undoubtedly has already taken account of my opinion on that.

The hearing aid provisions are long overdue.

The order also addresses separately government oversight of labor markets in ways that will affect health care.  

Those include encouraging the FTC to ban or limit non-compete agreements.  That provision may prove helpful to physicians and nurses in avoiding career control by provider monopolies.

I will briefly explain the other main potential effects on Virginia’s hospital and health insurance markets. 

On the subject of hospitals, the order writes:

“Hospital consolidation has left many areas, especially rural communities, without good options for convenient and affordable healthcare service. Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market. Since 2010, 139 rural hospitals have shuttered, including a high of 19 last year, in the middle of a healthcare crisis. Research shows that hospitals in consolidated markets charge far higher prices than hospitals in markets with several competitors.”

I am not sure that consolidation has driven rural hospital closings as much as the shrinking of the rural populations and the relative lack of commercially insured patients there. There are early indications that expanded Medicaid will help stabilize the rural healthcare market. Ballad just reopened a shuttered hospital in Lee County.

But the role of consolidations in the increase in prices is undeniable.

In the Order, the president:

“Underscores that hospital mergers can be harmful to patients and encourages the Justice Department and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers.”

“Directs HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.”

“Directs HHS to standardize plan options in the National Health Insurance Marketplace so people can comparison shop more easily.”

The FTC and Justice have been encouraged to challenge existing combinations that were not opposed by previous administrations, including the Obama/Biden administration.  

As we have published more than once in this blog, the Justice Department and the FTC have jointly for at least two decades officially encouraged states to repeal CON laws, so they will go after this with a will.

The new chair of the FTC is a 34-year-old zealot who has never run anything, but assuming she doesn’t cripple the entire agency, her appointment should help. The anti-trust division of DOJ will definitely be active in this.

A major component of market consolidation is the combination of provider regional monopolies with regionally powerful health insurers.  

If you go to a map of insurer participation in the ACA marketplaces, you will see that many Virginians outside the I-95 / I-64 corridor, especially in the poorest areas of Southwest and Southside Virginia, have only one ACA choice.  

The most prominent but not the only example in Virginia of hospital/insurer combinations is Sentara Health, which controls Optima Health, a big force in health insurance in Sentara’s core market of Hampton Roads, in the ACA marketplace and especially in Medicaid managed care.  

Optima caused a national scandal in 2018 when Anthem pulled out of the ACA marketplace in central Virginia for a year and Optima, the only remaining provider, “offered” the highest prices in the nation for ACA plans.

Beyond the ACA marketplace, provider-insurer combinations can use their insurance arms to pressure provider competitors and their hospital/physicians’ practice components to pressure insurance competitors. 

Sentara was successfully driven to abandon a takeover of North Carolina’s Cone Health in no small part because of the history of its use of its Optima arm.

It will be interesting to see if the Justice Department and the FTC turn their attention to such combinations, especially in Certificate of Need states like Virginia.  

Under existing law, the obstacle remains of the state action doctrine when suing state-awarded hospital monopolies in CON states. That obstacle is presumptively removed when targeting provider monopoly insurance arms.  Those were not awarded by the state

In sum, I am encouraged that the federal government will place new emphasis on increasing competition in the healthcare provider and insurance markets.

Few states need the help as much as Virginia.