How COVID-19 and Value-Based Care Are Accelerating Hospital Mergers and Acquisitions

Two topics that dominate healthcare law right are COVID-19 and value based care. While the healthcare system has been moving towards value-based care for years, COVID-19 has accelerated this transformation. The pandemic has instilled a greater sense of urgency in the healthcare system to adopt virtual care technologies, interoperable data platforms, and remote monitoring technologies for disease management. In this article, we look at another important area driving value-based care: mergers and acquisitions. Particularly, this article illustrates how the pandemic has not only accelerated the paradigm of value-based care but has also accelerated the trend in health care mergers.

Hospital mergers and acquisitions have been on the rise well before COVID-19. Beginning in 2017, there were one-hundred and fifteen merger and acquisition transactions among healthcare organizations. However, COVID-19 has accelerated the perceived need for hospitals to engage in mergers and acquisitions to implement value-based care. This is because value-based care requires providers to control the costs and outcomes for an entire episode of patient care. Hospitals need to generate the scale to accomplish this. The merger provides more resources for hospitals to expand facilities, expand their digital and virtual access, as well as operate at lower costs.

Hospital merger and acquisition activity has not subsided despite the fact that COVID-19 has resulted in revenue losses for healthcare providers because the pandemic has caused healthcare leaders to reassess their current care delivery models. In fact, hospitals and health systems reported fourteen transactions during the second quarter of 2020. The pandemic has highlighted the advantages of scale, coordination and innovation that are likely to strengthen the strategic rationale for mergers, at least with larger hospitals. One notable announcement that occurred in June of 2020 was when Steward Health Care structured a recapitalization transaction with Cerberus Capital Management. The transaction transferred controlling interest of Steward Health Care to a management group of its physicians. This resulted in Steward Health Care becoming the largest physician-owned and operated U.S. healthcare system. The impetus for the transaction was to ensure that Steward Health Care’s transformative, accountable care model would continue to drive innovation as a physician-owned and integrated health care system, especially given the new realities in a COVID-19 world. Also in June of 2020 the largest not-for-profit hospital system in Illinois, Michigan, and Wisconsin announced they signed a non-binding letter of intent with Michigan-based Beaumont Hospital to explore a possible merger. While both entities are far from completing a deal, they also need approval from federal authorities. Early in 2020, the Federal Trade Commission (FTC) disclosed they would closely scrutinize mergers and acquisitions between two providers competing at the same level of the health care delivery chain.

In fact, the FTC and the Pennsylvania Office of Attorney General are seeking a preliminary injunction to block the union of Thomas Jefferson University hospital network and Albert Einstein Healthcare Network. The government postulates the merger would increase hospital prices by an estimated 6.9% at Einstein’s hospitals and cost consumers $23.3 million a year. On the other hand, the American Hospital Association posits that the merger of these two non-profit hospital systems will bring higher quality, greater access and more stability of health care services to some of the most vulnerable patient populations in the Philadelphia region. The FTC proceeding against the merger will take place in January 2021. Like many hospitals affected by the pandemic, Einstein Healthcare Network argues that their only viable option is to merge with Thomas Jefferson University. Whether or not the merger results in an antitrust violation, this case illustrates an important trend of closer ties between hospitals and health systems accelerated by COVID-19. And, a main justification for these mergers and acquisitions will continue to cite the need for delivering value-based care as COVID-19 has forced hospitals and healthcare providers to re-imagine how health systems can be better configured to meet the individualized needs of patients.

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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Coronavirus is Deregulating Healthcare One FDA Guidance At a Time

One unintended consequence of COVID-19 has been the paradigm shift within the healthcare industry which has turned to prioritize value-based, patient centric remote monitoring solutions and non-contact technologies. COVID-19 has created a demand for digital health technologies to provide relief for public health professionals and individuals alike. This is not to say that digital technologies have not been in existence, because they have. Rather, according to a 2019 Price Waterhouse Cooper survey, 94% of participants pointed to data-protection and privacy regulations, the Health Insurance Portability and Accountability Act (HIPAA) and the expansion of HIPAA rules and penalties under the Health Information Technology for Economic and Clinical Health (HITECH) Act as factors limiting implementation of digital technologies. This blogpost will explain the significant de-regulation efforts enacted by the Federal Drug Administration (FDA) to ultimately conclude why it is such an important time for the private sector to invest in digital health technologies.

Historically, venture capitalists and businesses looking to build and invest in digital health products and services have viewed the FDA as being “closed for business when it comes to innovation.”[1] However, the COVID-19 pandemic has drastically changed the regulatory giant’s approach to healthcare related products and services. At the end of March 2020, the FDA created the Coronavirus Treatment Acceleration Program (CTAP) to provide regulatory advice, guidance and technical assistance to potential sponsors seeking to develop drugs and biologic therapies for COVID-19. The FDA’s new approach is to accelerate the investigation of safe and effective therapies that could benefit people affected by the COVID-19 pandemic.

On May 11, 2020, the FDA finally issued two guidances intended to ease the regulatory burden of developing drugs and biologics to treat or prevent COVID-19. The first guidance document is titled, “COVID-19, Public Health Emergency:  General Considerations for Pre-IND Meeting Requests for COVID-19 Related Drugs and Biological Products” (Pre-IND Guidance). The Pre-IND Guidance directs sponsors to “initiate all drug development interactions for COVID-19 related drugs through Investigational New Drug (IND) meeting requests,” instead of submitting a pre-emergency use authorization (pre-EUA) requests. The Pre-IND Guidance highlights the importance of putting together a quality submission when engaging with FDA. Now, the pre-IND meeting request and package development process has been streamlined into a single step. This is especially important because the FDA will respond to a pre-IND meeting request as “written response only meeting,” meaning that there may not be an opportunity to provide additional information. The goal of this guidance is to provide explicit direction in assisting drug manufacturers to get their products into clinical trials efficiently.

The second guidance provides recommendations for clinical trial design for Phase 2 and 3 clinical trials intended to establish safety and efficacy for therapeutic or prophylactic drugs and biologics with the goal of potentially approving safe and effective drugs to address the COVID-19 pandemic. The guidance “strongly recommends that drugs to treat or prevent COVID-19 be evaluated in randomized, placebo-controlled, double-blind clinical trials using a superiority design.” It also includes a list of what it believes to be important clinical outcome measures for treatment trials, including all-cause mortality, respiratory failure, need for invasive mechanical ventilation and sustained clinical recovery.

Additionally, the FDA has also started Emergency Use Authorization (EUA) as one tool to help make certain medical products become quickly available during COVID-19. The issuance of an EUA essentially allows access to medical products that can be used when there are no adequate, approved and available options. Under the EUA, the FDA authorizes the product’s use based on the best available evidence. For example, after initial data from a clinical trial showed that remdesivir may benefit some patients with COVID-19, the FDA authorized remdesivir to be provided under the terms of an EUA to hospitalized patients with severe COVID-19.

We are seeing the fruits of this de-regulation. On June 6, 2020, the FDA authorized the first standalone at-home sample collection kit that can be used with certain authorization tests. The FDA issued an EUA to Everlywell, Inc. for the Everlywell COVID-19 Test Home Collection Kit. Individuals at home, who have been screened using an online questionnaire that is reviewed by a health care provider, can self-collect a nasal sample at home using the kit. The FDA also authorized two COVID-19 diagnostic tests, performed at specific laboratories, for use with the samples collected by individuals using the Everlywell kit. In the future, additional tests may be authorized for use with the kit. This exemplifies how de-regulation opens the door for innovative digital services that focus on public-private partnerships to deliver personalized, at home medical access. Currently, the Everlywell home-collection kit is the only authorized COVID-19 at-home sample collection kit for use with multiple authorized COVID-19 diagnostic tests.

Sadly, as of this writing we are seeing an uptick in the rise of confirmed COVID cases across the country. Given the FDA’s loosened regulations, there is a greater potential to meet the continued need to bring digital health services, medical devices, and drugs to the market to safely and effectively prevent or treat COVID-19. Stay tuned for Vandenack Weaver’s continuing coverage on the changing landscape of health-care law during this turbulent and historic time. Next week we will evaluate the changes related to certain device software functions and the shift to prioritize personalized-healthcare through post-acute care and interoperability.

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.

© 2019 Vandenack Weaver LLC

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U.S. Healthcare System Faces Mounting Cybersecurity Risks

The heightened use of technology in healthcare is coupled with mounting cyberattacks. Recently, the healthcare industry experienced a global cyberattack when malicious software targeted the industry. The attack hit Britain’s National Health Service the hardest, affecting sixty-five of its hospitals. Cyberattackers stole healthcare information after using phishing emails to take control of the organizations’ computers, encrypting the computers’ information, and threatening to release the patient information contained on the systems if the organizations failed to satisfy payment demands.

According to the U.S. Department of Health and Human Service’s Office for Civil Rights, over 100 million Americans’ health records were divulged in 2015. In early 2017, Experian predicted the health care industry would be the biggest target for an attack. Moreover, an Identity Theft Resource Center report revealed that more than 25% of all data breaches occurred in the healthcare industry, costing an estimated $5.6 billion each year.

Congress created the Health Care Industry Cybersecurity Task Force through the Cybersecurity Act of 2015 to examine the healthcare industry’s vulnerabilities and create solutions to the cyber threats that place millions of patients’ information at risk each year. In light of the recent attack, the task force investigated the state of health information systems security in the U.S. and found a desperate need to increase health IT security.

In its report to Congress, the task force made a series of recommendations that suggested how to fend off the increasing threats. Among others, the recommendations include creating programs to cleanse healthcare organizations of vulnerable hardware and software and inserting more people with security skills into the healthcare field. The report emphasizes that failure to intervene could lead to catastrophic losses for organizations and patients.

The task force notes that the successful implementation of its recommendations will require significant time and resources, but it hopes the government will promptly respond to its report with efforts to improve cybersecurity in healthcare organizations.

The task force notes that the successful implementation of its recommendations will require significant time and resources, but it hopes the government will promptly respond to its report with efforts to improve cybersecurity in healthcare organizations.

 

© 2017 Vandenack Weaver LLC
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