Long Island Business News
Hospital Mergers Driving Up Health Care Costs
by Claude Solnik
September 3rd, 2013
Hospital mergers lower costs through managerial efficiencies and improved care.
At least, that’s the pro-merger argument. Insurers aren’t so sure.
In many cases, insurers say, consolidation is increasing health care costs – and they have plenty of anecdotal evidence to back it up.
The metropolitan New York area is no stranger to hospital mergers; recent talks of a potential health system featuring Stony Brook University Medical Center and Southampton Hospital are just the latest in a long history of unions.
In 2010, Catholic Health Services of Long Island acquired 203-bed New Island Hospital in Bethpage and renamed it St. Joseph’s Hospital, the same year the North Shore-Long Island Jewish Health System acquired New York City’s Lenox Hill Hospital.
Rate changes followed both mergers. Catholic Health Services realigned rates at St. Joseph’s to match those charged at CHS’s Mercy Medical Center in Rockville Center, insurers say, while rates at Lenox Hill have increased roughly 50 percent since the North Shore-LIJ merger.
And the phenomenon is hardly limited to Long Island: Rates at New York Downtown Hospital are reported to have increased by 75 percent since the New York Presbyterian Hospital System acquired it in July.
Predictions of lower costs wrought by greater efficiencies just don’t universally pan out, said John Caby, vice president of provider engagement and network management at Empire BlueCross BlueShield.
According to Caby, bigger systems have more bargaining-table power, typically resulting in higher costs for insurers and the insured.
“We see it happening all across the country,” said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, a Washington-based insurance trade group. “Hospital systems use their negotiating clout to demand higher prices for services that result in higher cost for consumers and employers.”
Hospital systems insist that centralizing legal and other services saves money, and they’re only forced to increase reimbursements to make up for Medicare and Medicaid cuts and to cover training and other expenses.
“As a provider, you have to invest in improving the quality of care,” North Shore-LIJ spokesman Terry Lynam said. “There’s a cost attached to that.”
Regardless of rate impacts, consolidations continue. In June, Tenet Healthcare in Dallas announced plans for a $4.3 billion acquisition of Tennessee-based Vanguard Health Systems, which would create one of the nation’s biggest hospital systems.
In July, Tennessee’s Community Health Systems announced plans to acquire Florida’s Health Management Associates for $7.6 billion.
“Every hospital CEO has a book on their desk – they’re looking at being acquired or acquiring hospitals,” said Lisa Phillips, editor of Health Care M&A News. “They want to join systems to get more clout against insurance companies.
Phillips said the Affordable Care Act has only increased the momentum, with 105 hospital mergers completed in 2012 and 67 consummated so far this year, totaling more than $16 billion.
A recent health care-spending study by the National Institute for Health Care Management pinned the merger push on “enhanced negotiating strength vis-à-vis insurers, resulting in an ability to extract higher payment rates from insurers.”
Meanwhile, the potential for higher rates is actually squashing some proposed hospital mergers.
Although regulators approve most deals, the Federal Trade Commission stopped a proposed 2012 merger between OSF Healthcare System and Rockford Health System in Illinois, noting the deal would put the combined entity in charge of 64 percent of the region’s acute-care inpatient services – and would likely generate higher rates and premium costs.
Lynam said North Shore-LIJ is focusing on saving money through its mergers, as payments shift from a fee-for-service model to flat fees.
“We’re all about efficiency right now,” he said. “To prepare for this changing health care model, we’re doing everything possible to be more efficient.”
The system has negotiated deals with a half-dozen insurers where it’s paid a flat fee for managing care for a fixed number of patients. And North Shore-LIJ hopes to save money for patients, employers and employees by launching its own insurance plan, North Shore-LIJ Care Connect.