How $7.7B Baylor, Scott & White Deal Might Affect Healthcare Costs

"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."