Newark doesn’t need a hospital monopoly

Newark,_New_Jersey_at_night

The recently issued Navigant Report for the Greater Newark Health Care Services Evaluation claims that the closing of inpatient services at Saint Michael’s Medical Center and East Orange General Hospital would improve health care in Newark.

Nothing could be further from the truth. Instead, the report’s recommendations would result in the creation of a monopoly in inpatient hospital services in the Newark area, dramatically increasing health care costs for Newark residents. The proposal would eliminate hospital choice for the residents of the area, including many (45 percent) with serious transportation problems. It likely would eliminate more than a thousand jobs. It would increase, not decrease, the health care challenges affecting the City of Newark.

The Navigant report ignores the overwhelming evidence that reductions in hospital competition result in higher prices and harm consumers. Moreover, the Navigant recommendations provide that the highest priced hospitals in the market will survive — at the expense of the lowest priced hospital, Saint Michael’s. The economic research suggests that the Navigant recommendations could cost Newark area consumers $180 million or more annually in higher prices.

The Navigant approach – which effectively would leave Barnabas Health as the sole inpatient hospital provider in Newark – is totally contrary to the evidence on what works in health care. Two reviews performed for the New Jersey-based Robert Wood Johnson Foundation found that “increases in hospital market concentration lead to increases in the price of hospital care,” and that “hospital mergers in concentrated markets generally lead to significant price increases.” The study also found that “competition improves quality. . .”

New Jersey’s health economics experts agree. Sujoy Chakravarty, a professor at Rutgers Center for State Health Policy, has stated that “[a]n increase in (hospital) consolidation leads to an increase in prices.” Uwe Reinhardt, a leading health care economist at Princeton, has said that “[e]very hospital consolidation that has ever been proposed has been justified on the grounds that it will increase efficiency, lower the cost of producing hospital care and therefore lower prices, or keep them in check. . . Yet a huge body [of] econometric literature suggests that other things being equal, hospital consolidation has pushed up the prices hospitals charge.” The consolidations and closures recommended by Navigant will be no different.

Additionally, the Navigant recommendations would force the closing of Saint Michael’s and require the state to assume responsibility for an additional $50 million in bond indebtedness.

The Navigant report also fails to address, or even identify, the enormous subsidies that New Jersey tax payers are providing to University Hospital. By our calculation, that sum is at least $200 million annually. Navigant’s recommendations would amount to a huge windfall for Barnabas, and provide little, if any, benefit to University Hospital or New Jersey taxpayers.

The far better solution is to allow the market to work, and to allow for the timely approval of the Prime Healthcare acquisition of Saint Michael’s. Prime has agreed to invest at least $25 million for capital improvements, equipment, information technology, and infrastructure improvements at St. Michael’s. The acquisition would preserve Saint Michael’s as an important community asset, maintain more than a thousand jobs, increase tax revenues, and avoid the enormous cost to the state and the public if Saint Michael’s were to be forced to close.

Prime’s commitment is strongly supported by its track record. As Prime stated in its submission to the Attorney General, “Prime Healthcare has saved 29 hospitals and 35,000 jobs in nine states nationwide, and has never closed a hospital it acquired.”

Navigant summarily dismissed the prospect of a Prime acquisition because, according to Navigant, it would “perpetuate – and probably intensify – the competition” in the market. Navigant concluded that a Prime acquisition would not be helpful precisely because such an acquisition would invigorate Saint Michael’s and result in more effective competition. Navigant’s approach is exactly the opposite of what Newark needs.

As Governor Christie stated in his second inaugural address, “We should make sure that government pursues policies that believe in the effort, talent and optimism of New Jerseyans, not in the power of almighty government to fix any problem, real or imagined.” The governor also has explained that “[n]othing else in our society works when they don’t have competition. . .” We agree.

The appropriate solution here is not to impose an ill-considered monopoly, but to allow the market participants to individually act to address the issues facing health care in Newark.

David Ricci is the President & CEO, Saint Michael’s Medical Center
David Ettinger is the Chair, Antitrust & Trade Regulation Practice Group, Honigman Miller Schwartz & Cohn LLP

Newark doesn’t need a hospital monopoly