Hospital mergers may lead to higher prices

SHARE Hospital mergers may lead to higher prices

Those paying for health care in the U.S. worry megamergers like the proposed marriage between Advocate Health Care and NorthShore University HealthSystem will lead to higher prices.

The proposed merger, which would create the 11th largest tax-exempt hospital operator in the U.S., treating 3 million patients annually, comes at a time when employers, insurers and the Affordable Care Act are working to keep a lid on health care costs by paying medical care providers to keep patients healthy and out of the hospital.

Hospitals that merge are trying to gain more leverage as economic forces move away from traditional fee-for-service medicine that critics say leads to unnecessary tests and procedures to so-called “value-based” medical care that rewards doctors and hospitals in a bundled or per-patient rate that requires providers to coordinate care and produce better health outcomes.

“Bigger hospitals really only mean bigger bills for patients,” said Brendan Buck, vice president of communications at America’s Health Insurance Plans, the Washington trade group that represents health insurance giants like UnitedHealth Group, Aetna and Chicago-based Health Care Service Corp., the parent of Blue Cross and Blue Shield of Illinois. “Consolidation promises greater efficiency, but all that ever materializes is greater costs.”

Insurers and large employers have been outspoken critics of the hospital merger wave sweeping the Chicago area and the U.S. They see providers of medical care battling back against value-based care.

Across the country, hospital admissions in recent years have been flat or falling, and quality measures woven into the Affordable Care Act also threaten future growth of hospital admissions. For example, hospitals are penalized by the federal government if they make a mistake or botch a surgery that requires a Medicare patient to be readmitted within 30 days.

A larger hospital system like the proposed Advocate NorthShore Health Partners would have more power to negotiate higher rates to make up for lost inpatient admissions.

By strengthening their bargaining power with health insurers and employers, a merged hospital system could also limit choices at a time the menu of choices is growing under the Affordable Care Act.

As one example, insurance companies like UnitedHealth Group that sat on the sidelines last year in certain markets are now expanding offerings on government run-exchanges across the country for this fall’s open enrollment period under the Affordable Care Act.

When insurers and employers do raise rates, they are almost always passed along to consumers in the form of higher premiums, copayments and deductibles, health benefits consultancies say.

The Chicago business community in particular is worried about the merger.

“We were surprised about the merger and believe it offers a two-edged opportunity,” said Larry Boress, president and CEO of the Midwest Business Group on Health, which includes Boeing, Caterpillar and some of Illinois’ largest employers as members. “On one side you have two high-quality institutions joining forces, but on the other you now have the combination of our largest health care systems, which reduces competition and could negatively impact prices.”

And there is mounting research in recent years that hospital mergers are contributors to higher costs.

In a 2011 policy brief for the National Institute for Health Care Management, University of California, Berkeley, health economics professor James C. Robinson showed prices hospitals charge for six common procedures were up to 50 percent higher when a hospital is located in a market with less competition.

And a widely circulated June 2012 brief published by the Robert Wood Johnson Foundation showed “hospital consolidation generally results in higher prices.”

“This is true across geographic markets and different data sources,” the study by Martin Gaynor of Carnegie Mellon University and Robert Town of University of Pennsylvania’s The Wharton School said in the Robert Wood Johnson study. “When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.”

But Advocate and NorthShore maintain they will wrench costs from the system.

“We share a long-term strategy to reduce costs while improving efficiencies and advancing quality,” NorthShore’s board chair, Steven Crown, said in a statement.

Advocate board chair Michele Richardson said the combined entity will “create economies of scale that will allow us to reduce the trend of rising health care costs.”

One way Advocate and NorthShore plan to cut costs is by eliminating “redundancy,” said Advocate’s Kelly Jo Golson, senior vice president and chief marketing officer.

“While there is potential for minimal layoffs, reductions in our workforce will primarily come from normal turnover and attrition,” Golson said.

One salary that will likely disappear two years after the deal closes will be that of NorthShore’s longtime President and CEO Mark Neaman.

For a “designated timeframe” Neaman and Advocate chief executive Jim Skogsbergh will serve as “co-CEOs,” an Advocate and NorthShore statement said. Neaman earned nearly $3 million for the year ended Sept. 30, 2012, according to NorthShore’s 990 filing in 2012 with the Internal Revenue Service.

Under Skogsbergh and Neaman, both hospital systems have been known as aggressive negotiators when it comes to extracting rate increases from insurance companies.

The two health systems also have a history of scrapes with the Federal Trade Commission with each drawing scrutiny a decade ago related to their dealings with health insurance companies who pay them.

In 2008, the FTC, after a lengthy probe and trial, eventually ordered NorthShore to have “separate negotiating teams for both inpatient and outpatient services” at its Evanston and Highland Park operations when dealing with insurers.

And Advocate affiliate Advocate Health Partners was accused of price-fixing over its negotiating practices with insurers on behalf of 2,900 independent doctors. An FTC consent order in December 2006 settled the price-fixing charges and for “refusing to deal with certain health plans except on collectively determined terms.” The FTC order prohibited several Advocate-affiliated organizations from “engaging in such anticompetitive conduct in the future.”

Advocate and NorthShore acknowledge the merger agreement is subject to “multiple regulatory approvals including the Federal Trade Commission.”

The state’s largest health insurer, Blue Cross and Blue Shield of Illinois, said it was “reviewing this proposed merger and will reserve our comments for the public regulatory review process,” Illinois Blue Cross spokesman Mike Deering said Friday.

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