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The Fight to Save Independent Health Care in the Age of Medical Monopolies

Can a New Mexico oncologist succeed in breaking up the state's biggest health care provider?

A Presbyterian Healthcare Services center in Rio Rancho, New Mexico. (Khlnmusa/Wikimedia Commons)

From the outside, the New Mexico Cancer Center looks like any other outpatient clinic: Each week, hundreds of cancer patients travel to the nondescript tan and turquoise building in an Albuquerque office park just off the interstate for tests and treatments. But unbeknownst to many of them, it has become a flashpoint in a legal battle over the future of health care in the United States. The Cancer Center’s CEO and co-founder Barbara McAneny, an oncologist, has long accused New Mexico’s dominant health system, Presbyterian Healthcare Services, of using its size to force her out of business—and now she and her colleagues are suing in the U.S. District Court in the District of New Mexico to break the health system apart.

The fight pits these two businesses against one another, but it is also a clash over the best way to deliver health care in the United States, as embodied by two of the country’s most powerful health care interest groups. Earlier this year, McAneny became president of the American Medical Association—and as such, perhaps the nation’s most prominent physician. And although he recently left to head another health system, the longtime CEO of Presbyterian, Jim Hinton, served as the chair of the American Hospital Association while the lawsuit advanced.

Filed in 2012, the case has already ground along for more than half a decade of legal motions and a lengthy discovery phase, not atypical in an antitrust case of this complexity, and the parties now wait for the judge to set a trial date. The outcome of the case will affect not only where New Mexican cancer patients get treated, but whether giant health care businesses across the country will be allowed to continue growing unchecked, in the face of diminishing competition. According to an index used by regulators, 90 percent of metropolitan statistical areas have hospital markets that are so “highly concentrated” that the lack of competition warrants scrutiny, and 65 percent have highly concentrated specialist physician practices, as well.

“Consolidation can be a perfectly good thing,” said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University. In theory, economies of scale can eliminate redundancies and allow for better coordination. “But it’s also very important to bear in mind that healthcare is a business—and healthcare is a really, really big business.” Like other monopolies, health care companies are more than capable of using their market position to inflate prices, and experts increasingly say that lack of competition is one of the main reasons why health care costs in the United States are so high, consuming nearly one fifth of national economic output.

With every new blockbuster merger between ever-larger health care businesses, regulators must consider whether they are expanding to deliver better care at lower cost, or merely extinguishing competition to bend the market to their will. And that, in part, is what this lawsuit is set to decide.

Founded by a minister in 1908 as a sanitarium for tuberculosis patients seeking cures in the dry desert air, Presbyterian began to take its modern form in the 1960s when the first brick buildings of the hospital’s central campus were erected. Jim Hinton, an Albuquerque native, began a residency in hospital administration there in 1983. Charismatic and good at organizing people, he rose through the ranks quickly, and in 1995, the board elected him CEO. He was 36 years old.

New Mexico is tough terrain in which to grow a health care business. The state has among the highest rates of liver disease, teen births, and diabetes in the nation. Delivering care there means covering vast distances—of New Mexico’s two million residents, a quarter are spread out over extensive rural areas and distant from city hospitals—and there are few resources to pay for it. With one in five New Mexico residents living below the poverty line, health care providers treat a population more reliant on public insurance than in any other state, a situation that cuts into their margins. (Medicare and Medicaid reimburse less than private insurers would for the same services).

But New Mexico has also been on the leading edge of the business of health care. Until the 1990s, hospitals in the United States typically provided care and billed outside insurance companies for it, but during that decade hospitals in Albuquerque were among the first to begin offering their own health insurance plans. As so-called managed care organizations, the theory went, these hospitals would be incentivized to keep their insured patients healthy and out of the hospital, avoiding unnecessary care that came of doctors billing and ordering extra procedures. But the new structure also meant that these organizations got to decide which practices and physicians they would work with, and which to exclude. And the power to influence where insured patients receive treatment could also be used as a weapon against competitors, as Hinton would demonstrate early in his tenure.

In 1997, Presbyterian purchased an insurer, Family Health Plan, whose 58,000 members meant the hospital now controlled the largest health plan in the state. Before they were folded into Presbyterian’s network, those people had been able to go to any regional hospital; now Presbyterian told them their care would only be covered if they went to one of its own facilities. This was a brilliant strategic move in the eyes of Barry Silbaugh, who was a physician vice president for a rival hospital, St. Joseph’s, at the time. In effect, the merger deprived St. Joseph’s of crucial income, ultimately driving it out of business. “Most hospital executives would not think of that, in my opinion, but [Hinton] was thinking as an insurance executive.”

Hinton also pushed Presbyterian to acquire physicians. Outside doctors had long brought their sickest patients to his hospitals, which essentially served as workshops where they drew on the intensive care services only hospitals can provide. But as new regulations made it more onerous for clinicians to run their own small private practices, Presbyterian offered to make them permanent employees—strong-arming them to accept, if necessary

Allyson Ray, an ear, nose, and throat doctor in private practice in Albuquerque, had treated Presbyterian-insured patients for years when the health plan abruptly cut its reimbursements for her services. When she and colleagues grouped together to negotiate, she said Presbyterian informed them it would rather pay higher prices to send patients for treatment out-of-state than compromise with them. The incident added to New Mexico’s perennial shortage of specialist physicians: rather than endure the confrontation, Ray recalled, one of the doctors left the state and another retired early.

Presbyterian also restricted the technologies clinicians could use in the hospital without their input about how it might affect outcomes. “From my viewpoint it was mostly for the benefit to build their business,” Ray said, “and they didn’t seem to show any concern for quality of care.”

General surgeon Robert Milne said that when he left private practice for a job at Presbyterian in 2003, it didn’t immediately affect the care he delivered; he was able to refer patients to doctors he trusted, whether or not they, too, were Presbyterian employees. But then things began to change: “That was discouraged,” he said, and over time, “they became more insistent.” While it would seem logical for an insurer to seek out the best services at the lowest cost, Presbyterian preferred dealing back to its own staff. As another doctor put it to me, they didn’t care what they paid; they care who they paid.

In a history of Presbyterian issued on its centennial, Hinton said such criticisms were a misreading of the events. “I think independent specialty physicians saw that Presbyterian and the health plan were growing and may have felt that we would use our size to their detriment. Well, that was never our intent.” Whatever the intent, the number of physicians employed by the system has swelled — from 42 in 1995 up to over 650 today.

With 11,000 total staff, Presbyterian is now the largest private employer in the state, and it insures one in three New Mexicans. As Larry Stroup, who was chairman of the board when it named Hinton CEO, told me recently, “If I didn’t have that level of understanding and appreciation of Presbyterian, if I was on the other side of the competitive environment in Albuquerque, I would claim that it is an unbalanced market.”

Leading a tour of the Cancer Center, Barbara McAneny strides the corridors with easy command. The word most people settle on to describe her is “tough.” (In her speech on taking the reins of the American Medical Association, she quoted Sylvia Plath: “I don’t believe the meek will inherit the earth; The meek get trampled and ignored.”) Little escapes her. Ducking into an empty exam room, her gaze quickly settles on a scuff mark behind the door where a chair has rubbed against it, and she frowns. An avid gardener, she points out a spot through a window where she’d planted rose bushes in the dry desert earth—until she realized the only people enjoying the flowers were those who stepped outside to smoke, and she paved it over to make more clinical space.

This site was nothing but dirt when McAneny first entered private practice in 1983, the same year Hinton took his first job at Presbyterian. A few years later, she teamed up with a fellow oncologist, Clark Haskins, and their group quickly earned a reputation for providing excellent care, traveling to the peripheries of the state to bring services closer to rural patients. At that time, it was difficult to treat most cancers in outpatient settings, so the partners referred them to the city’s hospitals and cared for them there. As Haskins recalled, “She and I were #1 and #2, as far as admitting patients at Presbyterian and St. Joseph’s hospitals, for several years.”

McAneny and Haskins made a series of canny decisions to build their own business, and soon, they weren’t just cooperating with Presbyterian, they were competing with it. New anti-nausea drugs had recently hit the market, which allowed a growing share of cancer patients to be treated in their own doctor’s office, rather than a hospital, so McAneny and Haskins gradually referred fewer patients to Presbyterian. In 2002, they opened their New Mexico Cancer Center to provide outpatient care with an extensive array of ancillary services. On the walk-through today, McAneny points out the CT scanner and linear accelerator with evident pride, explaining that having these costly apparatuses on-site means a patient who comes in anxious about an unidentified growth can get immediate answers.

The Cancer Center will earn a healthy profit from those evaluations, but its most lucrative revenue stream comes from selling drugs. Typically, doctors prescribe medications that are then sold by pharmacists, but oncologists operate in a different way: They are allowed to both prescribe chemotherapy drugs and sell them, earning a share of the drugs’ price, which is often considerable (according to the Community Oncology Alliance, a single doctor may prescribe $5 to $6 million of drugs annually).

This arrangement has made private oncology practices tempting targets for acquisition, and federal policies give hospitals further reason to gobble them up. Presbyterian and thousands of other hospitals that are eligible for what is known as the 340B program can buy drugs from the manufacturer at a 23 percent discount— and when they dispense them, they can tack on additional ‘facility fees.’ This means that merely purchasing an outpatient facility and designating it as ‘hospital-based’ can vastly increase its revenues—with no change to its operations. And higher revenues are what justify the sky-high salaries of administrators who run these ostensibly nonprofit organizations: tax records show that Jim Hinton received $9.8 million between 2013 and 2016, making him among the highest-paid people in New Mexico.

These trends can be seen across the country, as oncology practices are swallowed up at a rapid pace. A 2018 study in Health Affairs found that 54 percent were integrated into hospitals or health systems in 2017, up from 20 percent in 2007. (There is debate about the degree to which the 340B program has driven the integration but a 2018 study in The New England Journal of Medicine found more than double the number of oncologists working in hospitals eligible for the program than in those that were ineligible.) And this explains why, shortly after the Cancer Center opened, Presbyterian allegedly began taking actions to acquire it.

McAneny said that at first, Presbyterian plied her group with offers to hire them. But, leery of the loss of autonomy they had seen other doctors experience on becoming employees of the health system, she and her colleagues demanded a degree of control that Presbyterian wasn’t willing to concede. Then, McAneny alleged, Presbyterian tried to run them out of business.

In the lawsuit she and her partners filed in June 2012, they claim the Presbyterian health system directed its physicians to cease referring patients to the Cancer Center. The doctors had a contract with Presbyterian’s health plan that allowed them to treat the patients it insured, but in the complaint, they allege that the health system threatened to terminate that agreement. Presbyterian also allegedly told patients that, to be reimbursed for care they received at the Cancer Center, they would have to fill their prescriptions for chemotherapy drugs at the hospital’s pharmacy, which would have undercut the Cancer Center’s main revenue stream.

Jason Mitchell, the Chief Medical Officer of Presbyterian, declined to comment on the lawsuit but maintained that the health system had no problem working with private practitioners in the community. “We’re very collaborative,” he said. “I think it’s critical that we maintain our community providers and their practice.”

There’s no consensus about whether cancer patients treated by a hospital fare better than those treated by independent physicians, but it’s clear that they pay more. A 2017 study found that cancer patients with commercial insurance who were treated in hospital outpatient settings paid prices that were 50 percent higher than those treated in doctors’ offices. And a 2018 study in The Journal of Health Economics found that the price of physicians’ services rose 14 percent after they were acquired by hospitals. Barak Richman, a professor of law at Duke University, said this is typical of how the way we bill for health care can distort the way it is delivered. “We encourage treatment in the wrong places: places that are incapable of giving higher-quality care and are wildly capable of imposing higher costs.”

According to McAneny and her colleagues, Presbyterian’s predations are rooted in its monopoly power, and the only true solution is to break it into its constituent pieces. “I want to take them apart,” McAneny said. “I want the hospital to go back to being a hospital. I want the health plan to go back to being a health plan. So every physician—whether independent or Presbyterian—can compete on quality and cost and not on who signs their name on the paycheck.”

But while the Federal Trade Commission has been relatively active in challenging “horizontal” mergers that consolidate similar businesses (when one hospital system acquires another, for example), they rarely intercede to block “vertical” mergers between different business types (as in the case of Presbyterian, which fuses doctors, hospitals, and insurance). “I don’t think that all of healthcare needs to be done by these large vertically-integrated institutions,” McAneny said. “I’m coming to the conclusion that there’s a right size for healthcare that varies based on your community.” Were the courts to rule in her favor, it might draw public attention to this position, and ultimately push regulators to take more aggressive action.

To be sure, it is impossible to ignore the financial interests that McAneny and her colleagues have in the outcome of the case. While they may be fighting for changes they believe will reduce the public’s health care expenses, the viability of their own business also hinges on the outcome. And there’s something personal at stake, too. McAneny and doctors of her generation mourn a culture of medicine they see slipping from their grasp: as health systems have expanded and grown more reliant on data to make clinical decisions, care has become fragmented across ever-wider teams and doctors have lost some of their centrality. McAneny can’t hide her disdain for the hospital administrators who have gained authority as a result; she described their main duties as “making sure there are meals provided to patients and the floors get cleaned.” David Stryker, an infectious disease doctor in private practice who has contracted with Presbyterian and served on one of its boards for over a decade, put it succinctly: “When I started practice, the hospitals were there to help me take care of my patients. Now, I’m there to help the hospital serve their customers.”

A single lawsuit is unlikely to turn back the tide. In a preliminary decision in 2014, a federal judge found that the Cancer Center made a plausible antitrust claim and allowed the case to move forward to discovery; they now await a trial date. But even if the District Court ultimately rules in the doctors’ favor, there is a limit to how much that will achieve. Health systems across the country are growing ever more concentrated, dominant in their own marketplaces and with economic weight to move markets in neighboring ones. Reversing these trends would almost certainly require regulators invigorated to push back hard against them, and legislators willing to dismantle the federal policies that promote consolidation in the first place.

Or perhaps the concentration will reach a point that it spurs policymaker to adopt an even more radical fix. “I have personally been a diehard conservative most of my life,” said Bill Fitzpatrick, a former Chief Medical Officer of Presbyterian, “but Bernie Sanders may have it right: we may need a single payer system.” In today’s fragmented health care marketplace, with competition mostly limited to behind-the-scenes negotiations between huge payers and providers, rent-seeking behavior is rife. Though costly, a sole public insurer might eliminate the worst of these inefficiencies.

While the parties to the lawsuit await trial, Presbyterian has continued its expansion unabated. In September, it opened a $145 million hospital an hour up the highway in Santa Fe, which many see as unneeded additional infrastructure but the requisite toehold for entering that new market. “I can already see the wars coming up there in terms of who is going to have the medical doctors and who is going to have the patients,” Fitzpatrick said.

But it is no longer on the watch of Jim Hinton, who finally left New Mexico in 2017 to head Baylor Scott & White Health in neighboring Texas, with about five times the annual revenue of Presbyterian. Few of his old peers were surprised when in October 2018, he announced the acquisition of the neighboring Memorial Hermann Health System, to create a sprawling network of 68 hospitals.