The announcement on Friday that Baylor Health Care System and Scott & White Healthcare intend to merge changes the landscape for healthcare delivery in the service areas around Dallas and Temple, TX, where the systems are based, respectively.
Even by Texas standards the two health systems are large by themselves. Combined and renamed as Baylor Scott & White Health, the $7.7 billion behemoth would become the largest nonprofit integrated delivery system in the state and possibly in the southwest, and one of the 20 largest health systems in the nation.
While the merger improves the unified system's economies of scale, efficiencies, market share, and negotiating clout with payers, there are questions about whether or not the accelerating trend of hospital consolidations such as this are escalating healthcare costs for consumers.
"This partnership is the right thing for Baylor. It's the right thing for Scott & White. And, it's the right thing for our communities," said Drayton McLane, Jr. chair of the Scott & White board of trustees, in a media release announcing the merger plans.
"Both health systems are well-organized, well-run, best-in-class organizations. We can learn from each other, and I think this only benefits the patients we serve by allowing us to deliver better quality care and increased access to care."
Some observers are not so sure.
In June, for example, the Robert Wood Johnson Foundation issued a review of previous studies on the effect of hospital consolidations and found that it "generally results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20%."
On the other side of the ledger, the RWJF review also cited previous research indicating that hospital competition improves quality.
But the projected effect on healthcare costs as a result of consolidation has garnered wide concern. Last month, America's Health Insurance Plans cited the costs borne by consumers as a factor in the amicus brief it filed in a federal appeals court supporting the Federal Trade Commission's challenge of a merger of two hospitals in Toledo, OH.
"Experience demonstrates that hospital consolidation results in higher prices for medical services and higher health care costs for consumers and employers," AHIP President/CEO Karen Ignagni, said in a media release accompanying the brief.
"Consumers have borne a tremendous cost from anticompetitive hospital mergers… A hospital transaction that eliminates competition between significant competitors increases the ability of those formerly competing hospitals to demand and obtain higher prices. Those increased prices are ultimately paid by consumers, who also must bear the additional harm created by reduced incentives to improve quality."
However, Richard "Buz" Cooper, MD, director of the Center for the Future of the Healthcare Workforce at New York Institute of Technology and a Senior Fellow in the Leonard Davis Institute of Health Economics at the University of Pennsylvania, says providers should not be scolded for trying to survive in a changing landscape.
"The consolidated providers (hospitals and physicians) can bargain better for a fairer piece of the pie. Big insurers and big government had most of the power. And that has forced consolidation," Cooper said in an email exchange with HealthLeaders Media.
"The biggest inflationary driver that I see is compliance, information technology, etc., jumping through all of the useless hoops. Just ask hospitals who they are hiring. The real consequence of ObamaCare is forcing provider consolidation, not for quality, value and all of that stuff but to be able to survive. And not only survive against the payers but survive against the regulators."
Adam Powell, a healthcare economist and president of Payer + Provider Syndicate, a Boston-based consulting firm, says the merger could prove to be a mixed bag for consumers in the affected service areas.
"This is an interesting merger because it involves two healthcare systems that are largely not overlapping. They are in geographically distinct areas," Powell says.
"As a result you have potential benefits and potential costs for consumers. On the benefits side, Scott & White is unique in that it is an integrated delivery system. It contains both hospitals and its own plan. This competence could potentially be rolled out to Baylor. If that happens this will be in the consumers' best interests because working together payers and providers can help deliver a quality product at a lower cost through vertical integration."
"On the other hand, this does give this larger health system leverage when negotiating with outside insurers," he says.
"Currently each is negotiating separately. Now this larger hospital system can more easily say 'take it or leave it' to health plans and get higher rates as a result. Currently it is possible for a plan to have Scott & White and not have Baylor or vice versa but as a merged entity payers will have to take it or leave it with both of them."
Powell says if the Scott & White Health Plan, a not-for-profit Health Maintenance Organization, is extended to include Baylor that could reduce costs by offsetting much of the "double marginalization" that occurs when hospitals and the plans are separate and each trying to make a profit.
"When you have integration you don't have the double marginalization issue. You don't have them working at arm's length. You have them working together to produce a high-value, high-quality service," he says.
"We have seen this at Geisinger (Health System) and Kaiser Permanente. There are a number of integrated delivery systems that are renowned for the quality and value they deliver. Having Scott & White move its competency to the Baylor system will eventually help them do that as well."
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.