A. The Creation of the HPC

Massachusetts was the first state in the nation to establish a legislative growth target to control health care costs.Footnote ⁷ The HPC was established by Chapter 224 of the Acts of 2012, which is a set of “interlocking provisions designed to tie the rate of healthcare cost growth to the rate of growth in the state’s economy.”Footnote ⁸ Though a public entity, the HPC is “not subject to the supervision and control of any other executive office, department, commission, board, bureau, agency or political subdivision of the commonwealth.”Footnote ⁹ The HPC was established with the goal of bringing Massachusetts’s health care spending growth in line with the state’s overall economy by establishing a health care cost growth benchmark to serve as a statewide target for the growth rate of total health care expenditures.Footnote ¹⁰ The HPC also conducts and disseminates in-depth analyses about who and what is driving statewide health care spending, makes data-driven recommendations to inform public policy and opinion, and supports regulatory action made by other state agencies.Footnote ¹¹ Every year, the commission holds public hearings based on the report submitted by the state’s Center for Health Information and Analysis (“CHIA”) comparing the growth in total healthcare expenditures to the health care cost growth benchmark for the previous calendar year.Footnote ¹² The benchmark is determined using a statutory formula which calculates a statewide target for the rate of growth of total health care expenditures (“THCE”). THCE is a per capita measure of total state health care spending growth used to control for increases in health care spending resulting from population growth. THCE is calculated based on: 1) medical expenses paid to providers by private and public payers, including Medicare and Medicaid (MassHealth); 2) patient cost-sharing amounts; and 3) total net cost of private insurance.Footnote ¹³

B. Optum’s Presence in Massachusetts

In January of 2021, UnitedHealth Group’s Optum healthcare services unit announced plans to add 10,000 physicians to its existing 50,000 physician network based in its direct patient care unit, OptumCare.Footnote ¹⁴ On April 15th, 2021, OptumHealth CEO suggested Optum would exceed its originally projected 10,000 additions in 2021.Footnote ¹⁵ OptumCare is a subsidiary of UnitedHealth Group Incorporated, which is a publicly traded diversified health and well-being company that offers a broad spectrum of products and services through its two platforms: Optum and UnitedHealthcare.Footnote ¹⁶ Optum provides pharmacy services and data; technology-enabled health services; and care services through its subdivision OptumCare, while UnitedHealthcare provides health care coverage and benefits services.Footnote ¹⁷

Optum has grown quickly in its contributions to UnitedHealth Group’s total earnings through operations since its initial reconfiguration under UnitedHealth Group in 2011.Footnote ¹⁸ In 2011, Optum’s operations contributed $1.26 billion to UnitedHealth Group, equating to 14.8% of the company’s total earnings. By 2020, Optum contributed more than 50% of UnitedHealth Group’s earnings, generating $112 billion in revenue thanks to the increased diversification of its healthcare services.Footnote ¹⁹

Optum’s first major acquisition of a Massachusetts-based provider organization was executed in 2018 when it acquired Reliant Medical Group (“Reliant”) in 2018.Footnote ²⁰ Optum acquired the 500 physicians and other medical providers employed by Reliant for $28 million in a deal that would leave Reliant locally operated with no changes in care for patients, except for a change from being a tax-exempt charitable organization to a taxable nonprofit.Footnote ²¹ Essentially, Reliant continued to operate as a nonprofit medical practice, but relinquished its status as a Massachusetts public charity and consequently its tax-exempt status.Footnote ²² In addition to the $28 million deal, Optum agreed to allocate an additional $186 million-plus for facilities and care restructuring, as well as $35 million for physician recruitment and care restructuring. Leading up to the acquisition, Reliant experienced slimming profit margins, prompting it to seek a buyer.Footnote ²³ The profit margin shrinkage was attributed to multiple factors, including an aging physician workforce, a 200% increase in rent at nearly half of its sites, and organizational restructuring needs.Footnote ²⁴

Optum announced a deal to acquire its next Massachusetts-based physician group in March of 2021 with Atrius Health, the largest independent physicians network in Massachusetts.Footnote ²⁵ The Atrius network consists of about 715 physicians, including the Harvard Vanguard practices.Footnote ²⁶ In June of 2021, the Optum-Atrius deal was reviewed by the HPC.Footnote ²⁷ The review was meant to identify “the potential impact of impending transactions on health care access, price, and competition.”Footnote ²⁸ A deeper look into the factors considered in the HPC’s review can help providers and other states understand what factors are central to keeping statewide health care costs down, as well as help predict how the Massachusetts AG may consider larger healthcare transactions for antitrust purposes.

A. Background of the Transaction

In analyzing the Optum-Atriust acquisition, the HPC considered that, historically, both Atrius and Reliant, Optum’s most recently acquired physician group, have been efficient physician organizations according to HPC benchmarks based on the ratio of average annual growth to total medical expenditures.Footnote ²⁹ Despite being resource efficient, Atrius was in search of a partner to provide increased financial stability for the organization after low profit margins which fluctuated between negative and positive.Footnote ³⁰ Atrius, having suffered revenue loss from the COVD-19 pandemic compounded with the shift of patients from commercial capitated plans to public and high-deductible plans, chose OptumCare citing a desire to maintain clinical practice autonomy while having with a partner aligned with Atrius’s focus on value-based care and population health.Footnote ³¹ Reminiscent of the 2018 Reliant acquisition, Atrius is to be transformed from a Massachusetts public charity to a taxable non-profit.Footnote ³² Atrius physicians, under this non-profit entity, would retain control of compensation, payer contracting, and clinical decision making.Footnote ³³ Pending approval by the Massachusetts AG’s office, Atrius is to transfer all non-clinical assets (non-clinical employees, facilities, and equipment) to a for-profit management services organization (“MSO”) that will be operated by CCH/OptumCare. OptumCare would pay to the Atrius charitable foundation fair market value for such nonclinical assets.Footnote ³⁴ Under a managed services agreement, Atrius would receive the following from CCH/OptumCare: administrative and corporate support; access to use OptumCare’s facilities; funding and support for Atrius’s strategic/operational plans; and support for Atrius’s recruitment/retention efforts of physicians and other providers to eastern Massachusetts.Footnote ³⁵

B. Patient Spending and Market Functioning

Despite the transaction being a significant change to the provider market, a preliminary review by the HPC did not find it likely to significantly increase patient spending or negatively impact market functioning.Footnote ³⁶ The HPC’s preliminary review of the transaction’s impact on health care cost and market did not find evidence of a negative impact on market functioning.Footnote ³⁷ Though it would increase market concentration in primary care markets, the HPC found it would likely not have significant impacts on bargaining power because: (1) the increases would be below the HPC’s relevant thresholds for concern and (2) there is limited geographic overlap between Atrius and Reliant. Furthermore, given the limited potential for exclusive contracting between Atrius and United due to United’s position in the Massachusetts payer market, the Optum-Atrius acquisition was determined to have a limited potential impact on the Massachusetts market.Footnote ³⁸ The HPC also took into consideration that Reliant did not indicate any concerning performance trends following its acquisition by Optum and that the preservation of non-hospital-based provider organizations have generally been shown to provide more efficient, high-quality care than hospital-based providers.Footnote ³⁹ With regards to potential issues of health care quality or access, the HPC did not find evidence of a negative impact on Massachusetts patients because there was no evidence that the transaction would alter Atrius’s status as a high-quality provider organization, and both parties stated intentions to recruit and retain high-quality physicians to service Atrius patients (though the HPC notes that the parties’ plans are still in development and thus unclear).Footnote ⁴⁰ Both parties agreed to publicly commit to cooperate in the Massachusetts marketplace by continuing to contract with a broad range of Massachusetts payers and cooperate with the Commonwealth’s efforts to collect data and monitor performance.Footnote ⁴¹ Based on the above, the HPC declined to conduct a cost and market impact review (“CMIR”).Footnote ⁴² CMIRs conducted by the HPC are more comprehensive reviews reserved for transactions anticipated to have “a significant impact on health care costs or market functioning.” They are the first state authorized, policy-oriented, and prospective review of health care impact separate from administrative determination of need or enforcement of antitrust/consumer protection concerns.Footnote ⁴³ These reports may help identify areas for further review or monitoring by the HPC or by other state agencies.Footnote ⁴⁴ The HPC’s review of the Optum-Atrius transaction identified the following as areas requiring close monitoring following the acquisition:

1. 1. Atrius’s size and market share over time, including any new locations or services it develops and any changes to the patient populations it serves over time;

2. 2. Atrius’s pricing over time;

3. 3. Health care spending for Atrius patients, including both unadjusted spending trends and health status adjusted spending trends;

4. 4. Changes to medical coding and risk score trends for Atrius patients;

5. 5. The quality of services provided by Atrius, including any concerns voiced by patients;

6. 6. Atrius’s financial performance and the use of any capital investment by Optum;

7. 7. Atrius’s efforts to care for at-risk, underserved, and government payer populations;

8. 8. Atrius’s commitment to continuing to work with a range of payers in global budget and other performance-based contracting arrangements;

9. 9. and Atrius and Optum’s continued cooperation with state and federal government, and compliance with all applicable rules and regulations.

Though the AG will conduct an additional review, it will utilize the HPC’s market impact analysis––which would’ve utilized considerable time and resources of the AG––in making its determination. Finally, the HPC recognized that both parties agreed to publicly commit to cooperation in the Massachusetts market by continuing to contract with a broad range of Massachuessetts payers, including MassHealth.Footnote ⁴⁵ In addition, the parties committed to continue cooperating with CHIA’s data collections and performance monitoring programs in demonstration of their commitment to improving health, reducing health care costs, ensure transparency, and enhance both the quality of and access to care in Massachusetts.Footnote ⁴⁶ While Optum-Atrius deal created some concerns that Optum would try to put pressure on Atrius to reduce its number of Medicaid patients,Footnote ⁴⁷ the HPC’s review found little basis for this concern.

Advances in clinical technology have increasingly shifted care from the hospital into outpatient and other alternative care settings. With hospital outpatient revenue growing at a higher compounded annual rate (9%) compared to inpatient revenue (6%) between 2011 and 2018,Footnote ⁴⁸ other independent physician practices like Atrius will likely seek to merge with other healthcare organizations to expand their outpatient capacities. While historically, mergers and acquisitions (“M&A”) have focused on scale, shifting care delivery trends towards more consumer-centric and prevention-oriented care may motivate health systems to use M&A to innovate through new partnerships, capabilities, and services.Footnote ⁴⁹ Thus as healthcare M&A continues to expand, other complex healthcare markets may increase their likelihood of approval by the AG office by utilizing the HPC’s factors.

A. The HPC as a Model in Reviewing Mid-Sized Transactions

With the financial strain of the COVID-19 pandemic, physician groups are likely to continue with M&A activity. A 2021 MGMA Stat poll found that 15% of physician practices had completed M&A transactions in the past year.Footnote ⁵⁰ Of the 49 medical practices that provided further detail on their M&As, 69.4% were involved in “mergers, joint ventures, or acquiring new practices” compared to just 22.4% that sold their practice to hospitals or health systems.Footnote ⁵¹ The American Medical Association’s (“AMA’s”) Physician Practice Benchmark Survey conducted in fall of 2020 found that “only 49.1% of patient care physicians work in physician-owned practices, down from 54% in the AMA’s 2018 survey.”Footnote ⁵² This 5% drop from 2018 to 2020 is an acceleration of the previously existing trend of physicians increasingly leaving physician-owned practices.Footnote ⁵³ Another study by the Physicians Advocacy Institute found that, between Jan. 1, 2019 and Jan. 1, 2021, about 48,400 physicians left independent practices for hospital or corporate-owned practices.Footnote ⁵⁴ These shifts resulted in nearly 70% of U.S. physicians being employed by hospital systems or other corporate entities (i.e. private equity firms and insurers).Footnote ⁵⁵ Reasons for medical practices and other health care provider organizations to look towards consolidation include:

If the private physician practice was already in decline, the pandemic is a catalyst for consolidation in healthcare.

This large-scale shift towards greater consolidation in the healthcare space prompted President Joe Biden’s recent executive order addressing such “unchecked mergers” by encouraging the DOJ and FTC to vigorously enforce antitrust laws and recognize “that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge.”Footnote ⁵⁷ While the largest deals that require federal review under the Hart-Scott-Rodino Antitrust Improvement Act (which usually involve hospitals) are likely to come under scrutiny first, state agencies should remain vigilant about the effects of smaller large healthcare transactions such as the Optum-Atrius acquisition. Utilizing independent reviews by agencies, like the HPC, could be helpful in preventing antitrust actions from being brought later or for maximizing the chances of approval by the AG. Investing in independent review agencies could save more strained federal and even state agencies significant time and resources, thus facilitating a more efficient and practical review of large healthcare transactions.

B. Recreation of the HPC in Other States

Several states have followed suit in establishing total health care spending growth benchmarks modeled after the HPC: Delaware was the first to follow in establishing its benchmark of 3.8% in a 2018 executive order,Footnote ⁵⁸ followed by Rhode Island with its benchmark of 3.2% in 2018Footnote ⁵⁹ and Oregon its benchmark of 3.4% in 2019.Footnote ⁶⁰ In 2020 and 2021, four more states have followed suit.Connecticut established its benchmark of 2.9% in 2021.Footnote ⁶¹ Washington,Footnote ⁶² New Jersey,Footnote ⁶³ and Nevada took initial steps to establish state cost growth benchmarking programs in 2020-2021. California is the next state to consider implementing a healthcare growth benchmarkFootnote ⁶⁴ and would be the largest state (in terms of population) to do so, suggesting that the HPC model is increasingly being accepted as an effective way to control health care spending in states of all sizes. While all eight health care cost growth benchmarking states have modeled their programs on the HPC’s design, each state has tailored elements of their mechanisms and methods in accordance with the state’s individual needs. Health care cost growth benchmarks “can provide a structure and process for increasing health system transparency and developing strategies for containing costs.”Footnote ⁶⁵ If more states were to adopt this emerging tool to contain state health care spending growth, health care spending in the U.S. as a whole could be more transparent, efficient, and have a single, uniform measure for healthcare spending growth that sufficiently accounts for states’ unique needs. Thus a closer look at how the HPC reviews health care transactions in assessing whether they would impede a cost growth benchmark can inform other states in how to monitor and consider mid-sized transactions amidst recent consolidation trends.