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Editor’ s Note: In a very concise article Ms. Livio has framed the major issues surrounding hospital consolidation. The bottom line is that often prices do increase when hospitals merge but for a number of reasons that benefit the patient and/or are beyond the control of the hospital.
We welcome the Robert Wood Johnson Foundation University Hospital to the growing family of hospital consolidations . We also note the report the Foundation financed, so referenced herein , which clearly states that prices often increase as a result of hospital consolidation. We believe the said report needs to be expanded to address the reasons for the justifiable price increases as outlined in the following article by Ms. Livio of the New Jersey Star Ledger and in the CRE White Paper on Hospital Consolidation.
In that the FTC is interested in the retrospective analysis of the impacts of hospital mergers consideration should be given to having the FTC analyze the merger between the Robert Wood Johnson Foundation University Hospital and the Somerset Medical Center as mentioned below.
Susan K. Livio/The Star-Ledger
It was an early morning in May and a few dozen health professionals had gathered around a flag pole in the parking lot of the Jersey City Medical Center.
Some wore scrubs, some wore white lab coats, others were in suits and ties.
A hundred yards away, the CEOs of Barnabas Health and Jersey City Medical Center looked down from the hospital as the Barnabas flag — white cloth emblazoned with the light blue Barnabas Health logo — was hoisted above Jersey City Medical Center.
The assembled crowd cheered and waved blue and white streamers.
The flag-raising in Jersey City last spring symbolized a trend taking place in New Jersey and across the nation. Larger health networks are making aggressive moves to acquire smaller hospitals, medical practices and rehab centers in an effort to control a greater portion of the market.
Hospital mergers have been a reality in the medical world for decades, but included in the Affordable Care Act, the sweeping legislative overhaul that transforms much of the health care industry, are a number of provisions that many experts believe will increase the pace of mergers, acquisitions and strategic partnerships.
Mergers, across the country, are happening at twice the rate seen before the Affordable Care Act was passed, said Matthew Cantor, a partner at Constantine Cannon in New York who specializes in antitrust matters. There have been at least 18 pending and completed hospital sales, mergers and partnerships in New Jersey since 2010.
ON THE MOVE
In just the past two years, Robert Wood Johnson University Hospital and Somerset Medical Center have announced plans to merge. Barnabas plans to serve as a consultant on the day-to-day operation of the state-owned University Hospital. Cooper Cancer Institute in Camden will partner with the nationally known MD Anderson Cancer Center of Houston.
The New Jersey Department of Health is reviewing a request from Atlantic Health, the parent company for Morristown Medical Center, above, to buy Chilton Hospital in Pompton Plains.Robert Sciarrino/The Star-LedgerThe state health department is reviewing a request from Atlantic Health, the parent company for Morristown Medical Center, to buy Chilton Hospital in Pompton Plains. Prime Healthcare, a California-based for-profit hospital chain, has won bids to purchase five New Jersey hospitals and is awaiting state approval.
Hackensack University Medical Center and its investment partner, LHP Hospital Group, purchased Mountainside Hospital in Montclair.
One reason for the activity is revenue pressure. Hospitals are already receiving lower Medicare payments from the federal government.
The Affordable Care Act also changes the formula for how some hospitals are paid. Instead of a fee-for-service model, where hospitals and doctors are paid for each and every procedure, hospitals will be paid a certain amount per medical condition, providing them an incentive to keep the patient healthy and out of the hospital.
The revenue pressure is a key reason Barnabas continues to look to expand its footprint, said Barry Ostrowsky, president and CEO.
At the same time, the new law also mandates new efficiencies, such as electronic record keeping, which are expensive for stand-alone hospitals to implement. Hospitals will also take a financial hit if they run afoul of new patient-safety rules.
The U.S. Centers for Medicare and Medicaid Services already does not pay for treatment associated with a hospital error and deducts a portion of Medicare reimbursement if too many patients are readmitted within 30 days.
By merging, Ostrowsky explained, hospitals can save millions on billing, purchasing, and other administrative costs. With one-third of New Jersey’s hospitals already operating in the red, opportunities to save are driving consolidation.
Robert Wood Johnson University Hospital and Somerset Medical Center, pictured here, have announced plans to merge. More mergers are expected as Obamacare health reform kicks in.Patti Sapone/The Star-LedgerConsolidation offers certain benefits to consumers, experts said. It shores up struggling hospitals, enabling them to share expenses and expand services.
Robert Garrett, president and CEO for Hackensack University Health Network, said the decision to team up with LHP Hospital Group of Texas to buy Mountainside Hospital last year has benefitted patients.
“We just opened up a wound care center in the past year — we also created additional orthopedic services. The funding for those was certainly helped by the joint venture with LHP,” Garrett said. Hackensack and LHP also reopened Pascack Valley Hospital in Westwood this year as HackensackUMC at Pascack Valley, six years after the financially struggling facility closed.
The state, which must review and approve any merger, sees some obvious benefits to some hospital purchases.
“When a single hospital is acquired by a larger system, shared services — information technology, purchasing, financial management, human resources management and patient billing services — often mean greater operational efficiencies and access to a greater array of specialty services, like long-term care,” Health Department spokeswoman Donna Leusner said.
But some are wary of the trend because they say it decreases competition and could drive up costs. If hospitals have a monopoly on a certain market, they can demand higher payments from insurers who in turn pass the costs on to consumers.
A research paper funded by the Robert Wood Johnson Foundation last year on hospital consolidations across the country reached a blunt conclusion.
“Hospital consolidation generally results in higher prices,” according to the report by Martin Gaynor of Heinz College at Carnegie Mellon University and Robert Town of the Wharton School at University of Pennsylvania. “Ultimately, increases in health care costs (which are generally paid directly by insurers or self-insured employers) are passed on to health care consumers in the form of higher premiums, lower benefits and lower wages.”
The Federal Trade Commission has stepped up its scrutiny of hospital price fixing and monopolies as the trend of mergers has continued, said Cantor. A transaction of $71 million or more automatically triggers an FTC review, but the commission is permitted to investigate any matter if there is a concern that consumers’ interests are at stake, he said.
“Hospitals are facing a very tough environment. Those who say they should not be able to merge at all don’t understand health care,” Cantor said.
But if a hospital system “becomes the only game in town, they could raise prices.”
David Knowlton, president and CEO of the New Jersey Health Care Quality Institute, a nonprofit consumer research and advocacy group, said he is generally suspicious of consolidation and is grateful the FTC is keeping watch.
“This is all about clout and grabbing up a bigger footprint,” Knowlton said. “With clout, they can demand price.
“There are benefits to consumers, but they are not financial,” Knowlton added.
“If you want access to a spinal surgeon and (the consolidated hospitals) share a doctor from a great spinal program, there is some benefit to that. But if the system enjoys a cost savings, that’s not going to benefit the consumer.”