Carolinas HealthCare System’s planned partnership with UNC Health Care is likely to raise health insurance premiums, experts say. Deon Roberts droberts@charlotteobserver.com
Carolinas HealthCare System’s planned partnership with UNC Health Care is likely to raise health insurance premiums, experts say. Deon Roberts droberts@charlotteobserver.com

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‘Bigger is not better.’ Experts warn patient costs could rise after NC hospital deal.

December 31, 2017 08:00 AM

When Carolinas HealthCare System announced a proposed combination with UNC Health Care this summer, it said the new hospital system would increase affordability for patients.

But as the two systems work to finalize a deal, some question whether the new public, nonprofit corporation – expected to be one of the largest hospital systems in the U.S. – will live up to such promises. Experts say decades of hospital consolidations show they drive up prices charged to insurance companies, which in turn charge higher premiums to customers.

“Bigger is not better. Bigger is more consumer-unfriendly,” said Lawton Burns, a professor at the University of Pennsylvania’s Wharton School.

“What they do is they put these systems together to basically have more bargaining power with the insurers,” Burns said. “They don’t improve quality of care, they don’t reduce the cost of care and they don’t necessarily increase access to care.”

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For their part, Charlotte-based Carolinas HealthCare and Chapel Hill’s UNC Health, both nonprofits, insist that the change can help push costs down for patients by forming a joint operating company, sometimes known as “virtual merger.” For example, system officials have cited greater purchasing power for supplies and eliminating duplicate functions.

In addition, the systems have said plans to expand access to care, especially in rural areas, could shift patients away from expensive emergency room visits. Such efforts should improve the overall health of communities, lowering patients’ health care costs, the systems have said.

“Both systems agree that one of the goals of the new (company) is to lower health care costs, which they believe in many instances will directly lower the overall cost to the patient,” Carolinas HealthCare said in a statement.

But industry consultants have concerns.

I would say higher premiums are likely to result.

Mike Beck, employee-benefits consultant

The joining of Carolinas HealthCare and UNC Health would create the nation’s third-largest nonprofit hospital, according to Texas-based Compass Professional Health Services. That’s based on the 43 acute care hospitals the new system would control.

The UNC system’s Board of Governors formed a special committee in November to review the mega-deal, and in December that special committee hired Texas health care attorney Jerry Bell Jr. to help vet the proposed joint operating committee. The special committee hopes to complete the review by the end of January.

North and South Carolina consumers could see significant spikes in health care costs, as both states already have a limited number of hospital systems, Compass said. In North Carolina alone, the combined system would control 41 percent of the state’s 126 hospitals, according to Compass.

“While current patients under these two systems might benefit from increased access to additional doctors, new patients will have limited options to choose from if they do not wish to use a UNC-CHS affiliate,” Compass said.

Carolina HealthCare System CEO Gene Woods, left, and UNC Health Care CEO William Roper announce their plans to create a nonprofit hospital corporation in this file photo.
Ethan Hyman ehyman@newsobserver.com

Durham-based employee-benefits consultant Hill Chesson & Woody told clients to be skeptical of promises that the deal will reduce costs. “I would say higher premiums are likely to result,” said Mike Beck, a consultant with the firm.

“Both systems want to try to expand access to care in the rural parts of the state, which I think is very noble,” he said. “They want to expand mental health. I think they talked about increasing tele-medicine access. They’ve got to find the money somewhere.”

Studies find price increases

There’s been a lot of research about hospital system consolidations, including by the Federal Trade Commission, which has found substantial price increases following some deals.

Consolidations can leave insurers with few alternative hospitals to include in their networks, giving the newly combined system greater bargaining power, the FTC has said. Even nonprofit hospitals, which receive tax breaks in exchange for providing community benefits like uncompensated care, have boosted prices after consolidations, according to FTC studies.

41%amount of N.C. hospitals the combined system would control

“Nonprofits increase prices when they have market power, just like for-profits,” said Barak Richman, a Duke Law School professor who has researched nonprofit hospital mergers.

“This has been studied directly and the empirical results are quite clear,” he said. “There is very little debate on the matter.”

Duke Law School professor Barak Richman
Megan Morr Duke Photography

In a widely cited 2008 FTC analysis involving nonprofit hospitals, the agency reviewed the 1999 merger of Alta Bates Medical Center and Summit Medical Center in the San Francisco area.

By 2001, prices charged by both hospitals to five insurers had jumped between 10.2 percent to 72 percent. The FTC also said Summit raised prices on three large insurers by the biggest amount of any similar hospital in California.

The results suggested nonprofit hospital mergers “should perhaps attract as much antitrust scrutiny as other hospital mergers,” the FTC said.

In a statement, Sutter Health, which merged Alta Bates with Summit, said the health system works to save patients, government payers and health plans hundreds of millions of dollars each year by providing more efficient and integrated care.

America’s Health Insurance Plans, a lobbying group, has continued to raise concerns about hospital consolidations. In a September blog, the group described consolidations as a major cause of rising health care costs.

“By no surprise, research has found that when hospitals in a region get bigger and squeeze out competition, prices go up for consumers,” the group said. “That’s basic economics.”

‘A better system’

Carolinas HealthCare and UNC Health insist their new company won’t harm health care competition in the state, saying their footprints don’t overlap. Also, UNC Health CEO William Roper has said the motivation isn’t to “extract monopoly rents” from Blue Cross and Blue Shield of North Carolina, the state’s largest health insurer.

“Independent research of past mergers overwhelmingly shows that when hospitals combine, costs for consumers go up,” Blue Cross said in a statement. The insurer said it needs more details about how the combination will improve quality, increase access to care and lower patient costs before it takes a position on the deal.

They are really two excellent-quality hospital systems coming together.

Melinda Hatton, general counsel for the American Hospital Association

At a recent Charlotte Chamber event, Carolinas HealthCare CEO Gene Woods said a push to make health care more affordable is one reason for a consolidation wave sweeping the industry. Another factor is the need to reduce companies’ costs by as much as 20 percent, he said.

Melinda Hatton, general counsel for the American Hospital Association, said some hospitals in recent years saw declines in revenue per admission after consolidating.

Research that her trade group released this year shows combinations can also produce savings and improvements in care. Patients in North Carolina should be optimistic about the pending deal, Hatton added.

“They are really two excellent-quality hospital systems coming together, with really outstanding leadership and focus,” she said. “I think for patients, all of that portends a better system that’s more responsive to their needs.”

Consumer impact

The deal comes as Carolinas HealthCare continues to defend itself against antitrust lawsuits accusing it of exerting its market power on insurers in ways that don’t benefit consumers.

North Carolina Attorney General Josh Stein
Davie Hinshaw dhinshaw@charlotteobserver.com

State Attorney General Josh Stein said he’s waiting for the Carolinas HealthCare-UNC deal to be signed so his office can scrutinize effects on consumers. “What we don’t want is for a dominant health-care player to exercise its share of the market to the detriment of the health of the people of North Carolina,” Stein said.

Beck, the Durham consultant, said he’s trying to remain optimistic that the deal won’t boost health care costs.

“Maybe this one will be the one that breaks the mold,” he said. “All research points to higher premiums.”

The (Raleigh) News & Observer contributed to this report

Deon Roberts: 704-358-5248, @DeonERoberts