There’s something worse than budget cuts

Why vertical mergers are bad for healthcare, and why you should care

A little preamble, I encourage you to check out these excellent legal write-ups regarding vertical mergers in healthcare:

¹ Defending Healthcare Vertical Merger Challenges After the Release of 2023 Antitrust Merger Guidelines by Abel Chacko, J.D.

² Antitrust Analysis of Vertical Health Care Mergers from Crowell & Moring LLP

A vertical merger is different from the traditional horizontal merger where companies buy competitors. Vertical mergers were, at one point, encouraged in the interest of efficiency gains. The legal argument reads like this:

“Section 7 of the Clayton Antitrust Act bars mergers whose effect “may be substantially to lessen competition, or to tend to create a monopoly” (15 U.S.C. § 18). The analysis of vertical mergers differs from that of horizontal mergers because… Vertical mergers involve companies that operate in different markets (the upstream and downstream markets) and are therefore not competitors in those markets.”²

Only recently has the FTC started to scrutinize vertical mergers as part of their new 2023 Merger Guidelines. My article below talks about one of the core motivators for the new guidelines: the UnitedHealth Group – Change Healthcare merger in 2021.

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“The first time a UHG nursing‑home practitioner was told to avoid sending a patient to the hospital despite symptoms of a stroke, she thought it was a mistake. The second time, she saw the financial bonus tied to it. The third time, she quit."

That scene is drawn from reporting by The Guardian about how UnitedHealth secretly paid nursing homes to reduce hospital transfers. How? UHG’s insurance arm covers more Medicare Advantage enrollees than any other insurance group. Optum, a UHG subsidiary, employs doctors and nurse practitioners. UHG also offered special bonuses to the nursing homes for every long-term resident who was enrolled in one of their insurance plans. According to anonymous staff in the story, this scheme told nursing home staff to persuade long-term care patients into switching insurance in favor of UHG-friendly plans.

This horror, is a window into a new system enabled by vertical consolidation. If you’re a patient, you’re there so that UHG can extract money from the federal government. If you’re a doctor, you might be fired from Optum for not playing along. Yes, I’m worried about Medicare and Medicaid cuts, but this is something more sinister.

“But wait, don’t antitrust laws prevent situations like this?”

Ideally, but I have bad news…

In January 2021, UHG struck a $13 billion vertical merger deal to acquire Change Healthcare, one of the nation's largest health-data vendors, with the goal of streamlining payment processes. Change’s ClaimsXten claims‑editing tool was used by nine of the top ten U.S. insurers; all except for UHG.

In February 2022, the U.S. Department of Justice (DOJ) sued to block the merger. The complaint warned that the deal would “allow [UHG] to use competitively sensitive claims data of hundreds of millions of Americans to reduce competition and innovation to the detriment of health insurance consumers.”

But, in 2023, the court ruled in favor of UHG, maintaining that “the ability to access sensitive data for anticompetitive purposes is not equivalent to being likely to so do.”¹

I wonder how the families of the nursing-home fatalities feel about that?

But, there may be a second chance. In November 2024, the DOJ filed suit to block Optum’s proposed acquisition of Amedisys, a $3.3 billion home-health provider. It will be a test case under the new 2023 Merger Guidelines, asking: is a company allowed to own the nurse in your home, the clinic, and the claim payer all at once? 

Being proactive

The OBBB will slash funding for Medicare and Medicaid, resulting in rural hospitals being pushed to the breaking point, and millions of Americans losing basic health coverage. That’s the enemy we know. It’s a tragedy, it’s unjust, and public health advocates, like me, must never stop working to reverse the trend. Solutions here can be creative, I’ve written about some, but the quickest fix for cuts is money. Money for hospitals, for insurance, for training clinicians.

So, in a weird way, I’m more afraid of the enemy we don’t know. That’s vertical integration. When one company owns the doctor, the hospital, and the billing platform, the solutions aren’t as easy. That requires the legal system, Congress, and the private market to negotiate solutions on behalf of patients. While the attention consolidates around budget cuts and hospital closures, corporations are restructuring care, taking power away from clinicians, and maximizing profits.

So if you care about Medicare, Medicaid, and quality of care, you should demand action on vertical mergers and keep an eye on the Amedisys case. Future patients may be counting on it.