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2023 Legislative Recap: Health Care Consolidation and Competition

By Samantha Scotti and Kevin Davenport  |  September 28, 2023

As health system consolidation increases nationwide, many state lawmakers are examining the impact of mergers on health care costs and quality, and considering policies to enhance oversight of future acquisitions.

Increasing consolidation includes both “horizontal” consolidation between the same types of organizations, like hospitals, and “vertical” consolidation across different types of providers, like hospitals acquiring physician practices

Studies suggest consolidation can result in higher health care prices, and many experts identify high heath care prices as the main driver of increasing health care expenditures. On the contrary, the American Hospital Association says that health system integration may offer financial stability for struggling hospitals, provide access to health system resources and provide equipment and facility upgrades.

In 2023, states enacted at least 36 bills across 24 states related to health system consolidation and competition, including policies related to health system merger review and approval, health system contracting reforms, certificate of need review, and much more.  

Oversight of Health System Mergers and Acquisitions

Several states have some form of notice or review requirements requiring hospitals, health systems, physician groups and private investment firms to notify authorized state entities of proposed mergers or contractual affiliations. At least four more states added requirements in 2023.

Colorado required hospitals to disclose information on current affiliations and a report of physician practice acquisitions. Illinois, Minnesota and New York joined other states in requiring notice of certain health care transactions, including mergers and acquisitions when the mergers and acquisitions meet certain conditions, like specified revenue thresholds.

Health System Contracting Reform

Experts suggest that consolidated markets may lead to large health care systems being able to negotiate anticompetitive contract terms with vendors, leading to decreased competition. States are considering policies that prohibit or limit contracting terms that may be considered as anti-competitive.

This year, Texas passed legislation prohibiting providers from including contract terms such as anti-steering, anti-tiering, gag clauses and most favored nation clauses. New York barred the use of most favored nation clauses between health insurers and health care providers, and Indiana prohibited noncompete clauses in primary care physician contracts.

Eyeing Increased Price Transparency

This legislative session saw multiple bills addressing price transparency requirements. Price transparency aims to help Americans know the price charged by health systems before receiving said services. Some suggest that price transparency can promote competition in health care markets. States are enacting legislation to enforce federal price transparency rules for hospitals and insurance plans, as well as establish additional state-level requirements.

Arizona and Arkansas require hospitals to comply with federal price transparency regulations in order to maintain their licenses. Texas appropriated funds for its Health and Human Services Commission to study and report on the financial and utilization data of licensed hospitals that generate revenue from public sources or benefit from tax exemptions. The bill requires the study to include recommendations on ways to improve hospital reporting and transparency.

Colorado passed two bills addressing price transparency. One bill amended previous legislation by requiring that hospitals must publicly post Medicare reimbursement rates, which may be used as a reference point to inform other payors. The second bill requires hospitals to report specified financial information to the State Department of Health Care Policy and Financing.

Curbing Facility Fees

Hospitals often impose facility fees, which are historically associated with hospital inpatient and emergency services, to cover operating or administrative expenses and these fees. However, facility fees, both in amount and frequency, are becoming increasingly common in non-hospital settings, such as a physician’s office acquired by a larger health system. This increase has led some experts to associate increases in vertical integration (e.g., a hospital acquires a physician’s office) and facility fees.

Four states passed bills this year addressing facility fees. Legislation in Connecticut revises current statute to prohibit charging facility fees when services are performed on a hospital campus. The bill also grants authority to the Office of Health Strategy to enforce penalties for hospitals that still bill facility fees for prohibited services. Colorado requires health care providers to notify patients when they charge a facility fee, prohibits providers from collecting facility fees on preventive services and creates a steering committee to study the impact of facility fees on patients and the state health care system.

Indiana enacted legislation requiring every hospital to file reports regarding financial information and revenue streams, including reports detailing facility fees the hospitals collected. Indiana’s bill also set new rules relating to institutional provider forms, i.e., the forms used to bill facility fees. The legislation prohibits providers owned by an Indiana nonprofit hospital system from submitting institutional provider forms when billing for services provided in an office setting. Further, the bill prohibits payors from accepting bills submitted on institutional provider forms for services provided in an office setting.

Maine requires the Maine Health Data Organization to publicly post a report on facility fee payments by payors. Additionally, Maine’s bill establishes the “Task Force to Evaluate the Impact of Facility Fees on Patients.”

Modifying Certificate of Need Programs

Certificate of need (CON) laws require approval of major capital expenditures and projects for certain health care facilities, potentially allowing states increased oversight of health system competition by reviewing changes in the health care market. Conversely, opponents believe CON laws stifle competition by protecting incumbent providers.

South Carolina modified its CON program by exempting most health care facilities from CON review. South Carolina now only applies CON review to nursing homes, skilled nursing facilities and construction of new hospitals (with up to 50 beds) in counties currently without a hospital. The bill also creates a CON study committee to assess health care access in rural areas. Another state similarly considering CON reform is Georgia, which created study committees in both the House and Senate examining CON modernization and reform.

Connecticut, North Carolina, Virginia, Washington and West Virginia all modified their CON programs in various ways. For example, Washington exempted CON review for kidney disease centers during temporary emergency situations and West Virginia exempted birthing centers from CON review.

Adding or Repealing? Certificate of Public Advantage

Two states enacted legislation this year related to certificate of public advantage (COPA). COPA statutes permit states to approve health care mergers in exchange for increased oversight after the merger occurs. COPA recipients receive immunity from state antitrust claims for the duration of the certificate. Research around COPA effectiveness varies. A recent FTC brief summarizes research regarding certain challenges and limitations of COPAs.

Colorado now allows certain hospitals to enter into collaborative agreements with one or more hospitals. The bill provides for exemption from state antitrust laws and provides for review of proposed collaborative agreements. On the other hand, Maine fully repealed its Hospital and Health Care Provider Cooperation Act, which issued COPAs and provided an exemption from federal antitrust scrutiny.

With health care consolidation on the rise, states may continue to consider the effects of consolidation and competition on health care prices, and their subsequent policy levers to address these affects.

Samantha Scotti is a project manager and Kevin Davenport is a policy associate in NCSL’s Health Program.

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