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Wellmont, Mountain States Merger Proposal Vows Cost Containment

 |  By John Commins  
   January 11, 2016

The proposed merger between the health systems would place limits on negotiated rates with insurers, and tie healthcare cost growth in two states to the federal Hospital Consumer Price Index and Medical Consumer Price Index.

Leaders from Mountain States Health Alliance and Wellmont Health System last week said their proposed merger would invest nearly $500 million in regional health initiatives over the next decade while holding healthcare cost growth below national averages in their two-state service area.

"One of the things you've heard from organizations that oppose these mergers generally is that they lead to substantial price increases," Alan Levine, president and CEO of Johnson City, TN-based Mountain States, said in a media conference call. "No one can credibly say that this merger will lead to pricing increases. It is not possible under the model that we have proposed."

Levine said the proposed merger would place limits on negotiated rates with insurers, and tie healthcare cost growth for their operations in Tennessee and Virginia to the previous year's growth as measured by the federal Hospital Consumer Price Index and Medical Consumer Price Index.

"In both cases it would be the consumer price index for that relevant field, minus .25%, [which] would be our cap," he said. "The first full contract year after the merger is consummated, our plan is for existing contracts, where the fixed automatic rate increases is already agreed to by the payers, we will decrease for that year for 50% the already agreed to rate increases. Thereafter, the cap would be tied to the CPI minus .25% for hospitals and for medical care from physicians."

For example, Levine says the average hospital and physician CPI increases last year were around 3.25%, which would put the merged system on a 3% cap. "And that is our cap," he says. "We may be priced under that cap."

The promise to hold cost growth below the national average is not mere rhetoric, Levine says, because the consolidated system could face "very clear consequences" if those cost containment goals aren't met.

"The Supreme Court has been steadfast in the state action doctrine of antitrust," he said. "There are two things required. One is that it is the policy of the state to permit the supplanting of competition in certain circumstances with regulation. We clearly meet that requirement because it is a policy of Virginia and Tennessee to permit this, as recently affirmed by both legislatures and governors within the last 12 months."

"The second prong of that test is that it has to be actively supervised by the state," Levine said.

"That process has already begun. The states have articulated rules for how the Certificate of Public Advantage application should be submitted. We plan to follow those rules. After the COPA is approved by the state, if we violate any provision of the COPA, the state has the right to terminate the COPA, which would trigger a plan for separation and would subject us to Federal Trade Commission scrutiny at that point."

Levine says he's confident that "a variety of variables" that will allow the merged health systems to provide care at lower-than-average prices.

"By eliminating unnecessarily duplicative capital and operating expense due to unnecessary duplication of services, we can generate savings not otherwise available if the systems were to be acquired by outside hospital systems," he said.

"Also, it is important to note that our region has the third-lowest Medicare Wage Index in the nation. So our operating costs generally are lower than other areas of the nation."

Merger Plans Progressing
Mountain States and Kingsport, TN-based Wellmont leaders say the merger proposal is moving along with enthusiastic support from the boards of directors at both systems, and could gain final regulatory approval from Tennessee and Virginia by mid-year.

The proposal includes nearly $500 million in "transformational investments" over the next decade that include:

  • At least $75 million to invest in population health improvements to meet the unique health needs of the region through a 10-year plan to be developed with the community and the public health resources at East Tennessee State University;
  • At least $140 million to expand community-based mental health services, residential and outpatient addiction recovery programs, and tobacco and substance abuse prevention programs as well as to further support children's and rural health services;
  • At least $85 million to develop and grow academic and research opportunities, support post-graduate health care training, and strengthen the pipeline and preparation of health professionals in the region; and
  • Up to $150 million to implement a common information technology platform to support the regional exchange of health information, connect our hospitals, physicians and other caregivers, and allow the combined system to offer higher quality, more convenient and more cost-effective care for patients.

"This is a social innovation on a scale that will attract philanthropic grants and investment and be the subject of research studies, trade journal articles, as well as philanthropic and social entrepreneurship case studies for years to come," Wellmont Board Chairman Roger Leonard said.

"This will also prove to be one of the most exciting economic development initiatives in our region in the coming decade," he says. "I mean think about it; close to a half billion dollars' worth of investments back into our region. The economic development professionals in our region ought to be doing back flips right now."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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