By Jeff Keeling
Mountain States Health Alliance and Wellmont Health system haven’t adequately substantiated the benefits a merger between the two would bring, nor their commitments to bringing those benefits about. That’s the upshot of an April 22 letter from the Tennessee Department of Health (DOH) to the would-be partners, who are working to get their merger request approved by the states of Tennessee and Virginia.
The nine-page letter is from Jeff Ockerman, director of the DOH’s division of health planning. It outlines a host of areas in the systems’ Feb. 16 application for a “Certificate of Public Advantage” (COPA) that need changing or further clarification to meet the standard in rules that the state developed to govern approval and regulation of a COPA, given the lack of competition that would result.
Ockerman wrote that with its requirement that the COPA applicants demonstrate “by clear and convincing evidence that the likely benefits resulting from the agreement outweigh any disadvantages attributable to a reduction in competition,” the bar is high. The state supreme court, Ockerman wrote, requires evidence from COPA applicants, “in which there is no serious or substantial doubt about the correctness of the conclusions drawn from the evidence.”
The letter states that in their responses so far to the requirements set forth in the rules, MSHA and Wellmont provided insufficient evidence for the benefits they claim will result from the merger.
“Please understand that providing responses to the application requirements without sufficient explanation and documentation does not mean the information is clear, convincing or complete,” the letter’s introduction says. “Applicants should avoid conclusory responses. As your team compiles the additional information requested below, be mindful that many of these requests are necessary because the responses in the application and addendum failed to substantiate stated benefits and commitments.”
The strict oversight is related to the merger’s anticompetitive aspects, and the “state action immunity” from standard antitrust review by the federal government that the COPA law enables. The Federal Trade Commission has followed the matter closely.
The systems responded April 25 in a one-page letter, noting that with the experience being a new one for them and the state, they used consent decrees and COPAs from other states as a guide. The letter from MSHA CEO Alan Levine and his Wellmont counterpart Bart Hove said, “we strove to craft an application that went far beyond any other we found in our research.” It added, though, that “we anticipated the Department would need additional information to exercise its statutory responsibilities, and we welcome the opportunity o further elaborate on the ways in which the benefits of our proposed merger significantly exceed the disadvantages, if any.”
The list of requests in the letter, which Ockerman writes, “is not exhaustive,” adding “further information will be required,” is broken into two categories of application sections being incomplete. One is that a section doesn’t meet the letter of the rule, the second that the information provided isn’t sufficient, “to determine the advantages and disadvantages of the proposed merger.”
Under the first example, the list requests revisions related to services offered by other providers, including identifying physicians under exclusive contracts with either system or its subsidiaries. That example also asks the systems to recalculate their market shares, “using appropriate geographic market and output measures.”
A footnote indicates that the COPA application, in its determination of the systems’ market share, includes competitors outside the systems’ 21-county “geographic service area,” as identified elsewhere in the application. Such a difference could skew downward the systems’ actual market share.
The longer list of requests centers around application elements DOH considers lacking in sufficient information for the department to determine the merger’s advantages and disadvantages. It includes seven main headings and nearly 30 total references.
The first reference simply cites the systems’ answer to the rules’ requirement that they list “potential disadvantages that may result from the cooperative agreement.” In the application, the systems listed none, spending a total of four lines to indicate they saw no adverse impacts on population health, cost of care to patients or payers, access or availability.
A second reference deals with projected geographic service area. A third gets into detail about insurance contracts, and, “proposed use of any costs savings to reduce prices borne by insurers and consumers.”
Subsections request significant detail about insurers with small percentages of the systems’ total revenue. They also ask for detail on the current insurance contracts with fixed rate increases, asking for “amount and timing” of them. They ask for the past five years worth of negotiated rate increases, “using the same methodology” that the systems used in promising not to raise rates by more than 0.25 percent below the hospital consumer price index.
The payer section also asks for details on “proposed methodology to cap negotiated rates, including whether contractual out-of-pocket payments will be included.” And it asks for details on how the new system would handle price setting for uninsured or private pay patients.
Further, the letter requests significant detail about the systems’ common clinical information technology system, and about health information exchange. It asks for numerous target dates on issues ranging from behavioral health capability to patient access to information. It asks how and when the $150 million designated for investment in a common clinical IT platform will be allocated, and asks for how those services would extend to non-system providers.
Finally, the section asks for commitment and timeframe for the two systems as they currently exist to begin participating in OnePartner, “the operational regional health information exchange.” It asks for options considered for the future, including continued participation in or purchase of OnePartner, participation with a competing HIE provider, or development of a competing service offering.
The letter also asks for clarity with respect to the systems’ promise of $75 million, $140 million and $85 million, respectively, for population health improvements, expansion of mental health and substance abuse-related programs, and development and growth of academic and research opportunities. Specifically, it asks whether those figures represent increases over past investments in the same areas, “and if so, provide an estimate of the aggregate” amounts.
In other words the state wants to know the difference between what’s been spent in those areas and how much will be spent under the new plan.
Finally, the letter asks for the systems to provide the full report from FTI Consulting, Inc., on which their anticipated economies and efficiencies from the merger are spelled out in detail.
The letter also includes eight “general comments” that include some interesting specific requests. They include a request to describe “proposed performance parameters that will be used to measure employee performance and another to, “clarify the amount of current debt and what is proposed in debt repayment and/or incurring additional debt as a result of this proposal.”
The entire letter can be viewed at jcnewsandneighbor.com/DOHletter042216.