Another round of debate over hospital consolidation

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Are hospital mergers a good thing or a bad thing?

Much of the answer to that question depends on what happens after the merger—does the combined organization provide better, more efficient care, or does it use its increased leverage to raise prices? Yet another round of back and forth on this issue took place this week, as the American Hospital Association (AHA) released the results of a study it commissioned from economic analysis firm Charles River Associates (CRA), while a group of academic antitrust specialists countered with their own briefing in response.

The AHA study, based on interviews with select health system leaders and econometric analysis by CRA, shows (surprise, surprise) that consolidation decreases hospital expenses by 2.3 percent, reduces mortality and readmissions, and reduces revenue per admission by 3.5 percent—indicating that the “savings” from consolidation are being passed along to purchasers. The economists, including Martin Gaynor at Carnegie Mellon, Zack Cooper at Yale, and Leemore Dafny at Harvard, countered in their briefing (surprise, surprise) that CRA’s research was biased in favor of hospitals, and cited numerous academic studies that indicate that hospital consolidation drives overall healthcare costs higher.

Beyond the predictable debate, our view is that consolidation can and should lead to better quality and lower prices—but that it largely hasn’t delivered on that promise. The prospect of “integrated care” that’s often touted by consolidation advocates hasn’t materialized in most places, both because hospital executives haven’t pushed hard enough on strategies to produce it, and because the market lacks sufficient incentives to encourage it.

AHA says hospital mergers are good — economists say otherwise

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The American Hospital Association released a report stating that hospital acquisitions allow providers to provide better care at a lower cost to patients.

The report, which revisited an analysis concluding similar results three years ago, found acquisitions decrease cost due to the increased size of a combined system as well as clinical standardization.

Specifically, the AHA said hospital acquisitions lead to a 2.3 percent reduction in annual operating expenses at acquired hospitals. The study also said readmission and mortality rates decline at merging hospitals, and acquired hospitals see revenues per admission decline 3.5 percent, suggesting “savings that accrue to merging hospitals are passed on to patients and their health plans.”

However, the AHA’s findings — which were largely based on interviews with leaders of 10 health systems who weren’t randomly surveyed — contradict a wealth of economic data published that argues the opposite.

Last year, researchers found hospitals in monopoly markets, compared to hospitals in markets with four or more competitors, have prices that are 12 percent higher. In markets with four or more competitors, hospitals have lower prices and take on more financial risk, researchers said. Another independent analysis found hospital prices rise after hospitals combine. Researchers have also questioned whether consolidation really leads to better quality.


Merger creates 5-hospital system in Georgia

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The merger of Sandy Springs, Ga.-based Northside Hospital and Lawrenceville, Ga.-based Gwinnett Medical Center will be official Aug. 28.

Northside Hospital, a three-hospital system, and Gwinnett Medical Center, a two-hospital system, will create a combined organization with 1,636 inpatient beds, more than 250 outpatient locations and nearly 21,000 employees.

Several of Gwinnett’s facilities, including its two hospitals, will be renamed once the merger is finalized. Gwinnett Medical Center-Lawrenceville (Ga.) will be renamed Northside Hospital Gwinnett, and Gwinnett Medical Center-Duluth (Ga.) will be renamed Northside Hospital Duluth.


Allegheny Health Network adds 9th hospital

Highmark's Allegheny Health Network has reached an affiliation agreement with Grove City Medical Center in Mercer County.

Pittsburgh-based Allegheny Health Network signed an affiliation agreement with Grove City (Pa.) Medical Center, the organizations said Aug. 19.

AHN, a subsidiary of Pittsburgh-based Highmark Health, and GCMC plan to close the affiliation in the next few months, pending government approval. GCMC will become AHN’s ninth hospital.

Under the agreement, AHN and GCMC will co-fund an independent Grove City Health Care Foundation, with an initial endowment of up to $30 million. In addition, GCMC will get a $40 million investment from AHN to support GCMC’s clinical programs, technological assets and physical infrastructure over the next 10 years. GCMC will also go live on Epic as part of the transition.

GCMC, a small, rural hospital, has faced growing financial struggles, according to the Pittsburgh Post-Gazette. For the past five years, the hospital has recorded negative operating margins. 


Health Plan Merger: Harvard Pilgrim, Tufts Pursue Tie-Up

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The organizations expect their combined strengths will enable them to improve affordability, increase access, improve quality, and streamline the customer experience.

Two major nonprofit health plan companies in New England are looking to join forces.

Harvard Pilgrim Health Care and Tufts Health Plan announced Wednesday that they intend to combine their two nonprofit organizations. 

“Our communities and consumers today face four major hurdles in health care: affordability, access, quality of health and a fragmented health care experience across various stakeholders and health systems,” said Tufts Health Plan President and CEO Tom Croswell in a statement. “Through our shared vision, we believe we can tackle these issues and bring more value to the communities we serve.”

Croswell is expected to serve as CEO of the combined organization, while Harvard Pilgrim Health Care President and CEO Michael Carson serves as president, overseeing the combined business lines and subsidiary, according to the announcement.

Joyce Murphy, board chair for Harvard Pilgrim Health Care, is expected to chair the combined board of directors, which will have equal representation from each legacy organization.

“Through the combination of two strong organizations with a commitment to non-profit health care in New England, we will be able to provide even greater value to consumers, as well as improve access to care throughout the region,” Murphy said in the statement.

The two organizations said they expect their combined strengths will enable them to improve affordability “through scale and administrative cost efficiencies,” increase healthcare access, improve healthcare quality, and streamline the customer experience.

The combined organization, which has yet to be named, would serve nearly 2.4 million plan members in Maine, New Hampshire, Massachusetts, Connecticuit, and Rhode Island.

Both boards approved the agreement, but the organizations will remain separate pending regulatory approvals, according to the announcement.


Hackensack Meridian acquires three northern NJ nursing homes

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Hackensack Meridian Health, the 17-hospital system in New Jersey, said Tuesday that it has added three nearby nursing homes to its network as it looks to better coordinate hospital and post-acute care.

The nursing homes are the 210-bed Prospect Heights Care Center in Hackensack, the 180-bed Regent Care Center in Hackensack and the 180-bed West Caldwell Care Center in West Caldwell. Prospect Heights is exclusively a subacute-care facility that provides rehab services after people leave the hospital. The facilities have a combined 750 employees.

Hackensack Meridian acquired 100% of Regent Care and 51% each of Prospect Heights and West Caldwell in a deal valued around $65 million, including cash and the assumption of debt. Tandem Management Co. owned all three facilities and will continue as a joint partner in Prospect Heights and West Caldwell.

With the deal, Hackensack Meridian now operates 13 post-acute-care facilities and has rebranded the new additions under the system’s name.

“Patients are staying fewer and fewer days in acute-care facilities,” said Robert Garrett, CEO of Hackensack Meridian Health. “Changes in technology are allowing patients to go home quicker even after receiving pretty intense care and receiving complicated procedures. The best way to ensure that there is a good hand-off is if we own and operate these post-acute-care facilities.”

Hospitals can benefit from having a strong relationship with the nursing homes they refer people to by avoiding federal readmission penalties.

Garrett said the deal will make it easier to find a nursing home bed for patients ready to be discharged and free up beds for patients waiting in the hospital’s emergency department. Hackensack Meridian Medical Center is about a mile away from two of the nursing homes.

The system did not commit a defined amount to capital improvements but plans to make significant investments in the facilities’ IT systems so they can share electronic medical records with its hospitals, said Stephen Baker, Hackensack Meridian’s president of post-acute care.

Baker said Hackensack Meridian’s staffing model is different from other nursing homes in that its facilities use mostly registered nurses; other nursing homes use mostly licensed practical nurses. Its patients tend to be more complex, which allows the system’s facilities to receive higher payments from Medicare. Some of its facilities earn 50% to 60% from Medicaid, which typically pays lower rates.

“We’re able to subsidize lower rates with higher rates from subacute care and favorable rates from managed care organizations,” Baker said. —Jonathan LaMantia