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Big business doubts savings from hospital mergers: survey

August 2, 2016

Large employers think hospital mergers may lead to more consistent care and service and better administrative efficiency, but they aren't buying that consolidation will lower medical costs or raise quality.

 

Nationwide, only 14 percent of these employers say that hospital mergers will reduce their costs, while 39 percent predict medical costs are likely to be higher post-merger, according to a survey of employers by the Midwest Business Group on Health, a Chicago-based employers association.

 

The doubts are even deeper in Illinois, where just 8 percent think their hospital costs would be lower if health systems combined.

 

“Employers have tended to be very cynical about hospital mergers,” said Larry Boress, CEO of the business group, which aims to lower employee health-benefit costs and raise standards in the health care industry.

 

The findings suggest that local employers are wary of the anticipated merger of Advocate Health Care and NorthShore University HealthSystem. A federal judge ruled in late June against the Federal Trade Commission's attempt to halt the combination on antitrust grounds. The deal is on hold while the FTC appeals the decision.

 

More recently, the U.S. Department of Justice sued to terminate two mergers among the biggest national health insurers: Anthem combining with Cigna, and Aetna with Humana.

 

WHERE'S THE PROOF?

 

“I can understand that skepticism,” said Marc Pierce, CEO of Stonegate Advisors, a data analytics firm in Chicago. “Mergers between large hospitals and large health plans are promising economies of scale, by stripping out unnecessary costs and getting efficiencies. I guess it's possible over time. Employers are wondering, 'Will we ever see a tangible benefit?'”

 

Boress pointed out that employers are not entirely downbeat on the mergers: 61 percent think hospital combinations are likely to improve consistency of care, and 64 percent say they could lead to improved administrative efficiencies. Forty-one percent say the hospital mergers could produce better health outcomes for patients.

 

David Smith, chief development officer at Leavitt Partners Consulting in Chicago, thinks employers are right to want proof about the benefits of hospital deals. "It puts the onus on the hospital systems to make the argument for lower costs and fees, and better service,” Smith said. “They need to make the argument to these businesses that it is in their interest” that they merge.

 

Another potential downside of mergers is that combining claims and payment systems often can take years. “A purchaser generally takes a breath when, in a limited market, they see major players merging,” Boress said. “I call it the Game of Health Benefit Thrones.”

 

The survey was conducted in June. It included responses from 85 large employers; three dozen are based in Illinois. The general thrust of the questionnaire was to find out how employers are thinking about health benefits in a rapidly evolving health care marketplace.

 

One big shift coming in 2017: Today 6 percent of employers offer high performance networks, where providers are selected based on quality and cost. Next year 19 percent will offer them. Likewise, the portion of employers willing to make direct contracts with hospitals for one or all services will jump from 5 percent to 24 percent.

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