When It Comes to Hospitals: Is Bigger Better?

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“Big is going to be better. Small is not going to survive,” predicts the CFO of New Jersey’s Inspira Health Network, a network created from the 2012 merger of South Jersey Healthcare and Underwood Memorial Hospital.

Hospitals are not big-box stores, and bigger does not necessarily mean more choice and access, cost-savings, or improved quality. It may not mean better or safer or more secure working conditions for nurses and healthcare providers either.   With nearly 80% of NJ hospitals already part of larger healthcare systems, and more mergers on the way, we need to carefully review and set conditions on each merger. Only then can we be assured that bigger hospital networks will better serve our communities.

This is now both a timely and critical issue, as the number of announcements of hospital consolidations grows almost daily:

  • Meridian Health System has notified the NJ Department of Health (DOH) of its intention to acquire Raritan Bay Medical Center.
  • Merger deals between Hackensack University Health Network and Palisades Medical Center, and between Hackensack and Meridian appear to be in the works.
  • A merger between Barnabas Health System and Robert Wood Johnson is rumored.
  • A recent report by Navigant Consulting recommends the merger of Newark’s University Hospital and Newark Beth Israel Medical Center.
  • The acquisitions of St. Clare’s Health System and St. Michael’s Medical Center by the for-profit Prime Healthcare Services await regulatory approval.

HPAE and other healthcare advocates have called for greater monitoring and oversight when our community hospitals are bought by for-profit owners.   We also believe the upcoming deals between not-for-profit hospitals and systems warrant careful review, input from affected communities, and continued oversight.

The hospital industry claims that mergers and acquisitions are key to coordinated care and efficient competition, and that these deals will improve quality of care, limit duplication of services and cut costs. And acquisitions, they boast, provide essential financial resources to rescue failing hospitals.

Studies show however, that bigger also is likely to be costlier, as the leverage wielded by large hospital systems reduces competition, allowing them to raise prices and negotiate higher insurance reimbursements. Hospital charges have been shown to increase as much as 40 to 50 percent after a merger. Ultimately, these increases can translate into higher premiums for employers and individuals, lower benefits and wages for workers, and higher out-of-pocket costs for patients.

Other studies show that it is competition, not consolidation that improves quality of care.[1] Consolidation has undermined community access to care in some cases, as health systems reconfigure services, forcing some patients to travel great distances for specialty care. And downsizing at some facilities in a merger can cause job and economic loss to the community and its residents..

At the federal level, these merger deals can trigger Federal Trade Commission (FTC) review to assess the impact on competition and prohibit those consolidations the FTC finds in violation of antitrust law.  In recent years, the FTC has taken a more aggressive role and has placed conditions on deals to preserve competition.

At the state level, the Department of Health (DOH) and Office of the Attorney General (OAG) have both the legal authority and responsibility to review these deals and place conditions that protect access and quality of care while also protecting the rights of employees.

NJ Certificate of Need regulations require extensive DOH review of mergers involving a for-profit hospital, but have drastically more limited requirements in mergers between two not-for-profit hospitals or health systems, such as the ones currently unfolding between Hackensack and Palisades; Meridian and Hackensack, and Meridian and Raritan Bay.

Instead of conducting a full and in-depth review of these deals that would scrutinize finances; services to be maintained; impact on access to care and on neighboring facilities, and projected staffing levels, the DOH merely asks the acquiring hospital to notify the DOH that the merger “does not diminish access to previously provided community services”.

In a full CN review, the DOH can place protections and conditions on the deal, including remaining a general hospital for a specified minimum number of years; maintenance of services; retention of staff; continued participation in insurance networks; financial transparency; and provision of charity care.

That is not the case in mergers between not-for-profit hospitals, where the DOH does not place any conditions on the deals. That can leave patients, communities and workers without adequate protections.

In the merger of Chilton Hospital and Atlantic Health System in 2013, Atlantic Health System voluntarily chose to submit to full review, and the DOH placed 19 conditions on the deal. That’s an example we’d like all hospitals to follow, but instead some hospital systems involved in mergers are asking for exemption from CN review.

We don’t think the DOH should agree to these exemptions, and instead should require all NJ hospitals and health systems engaging in consolidation to provide the communities they serve and their employees with the transparency and oversight that full CN review offers. Only then can we begin to assess whether or not “bigger is better”.

Ann Twomey, President, HPAE

Sources include:

Healthcare Mergers and Acquisitions in 2015: Running List, March 9, 2015, Healthcare Finance, http://www.healthcarefinancenews.com/slideshow/healthcare-mergers-and-acquisitions-2015-running-list?mkt_tok=3RkMMJWWfF9wsRoivqXIZKXonjHpfsX56O4sUKa1lMI%2F0ER3fOvrPUfGjI4FRMFjI%2BSLDwEYGJlv6SgFQ7LHMbpszbgPUhM%3D

Robert Pear, “F.T.C. Wary of Mergers by Hospitals” New York Times, Sept 17, 2014.

http://www.fiercehealthfinance.com/story/hospital-mergers-drive-hospital-costs/2014-10-02

Robert Wood Johnson Foundation, “The impact of hospital consolidation—Update”, June 2012.

When It Comes to Hospitals: Is Bigger Better?