| Today's Managing Health Care Costs Number is 3900 |
Carolinas HealthCare System (CHS) and University of North Carolina Health Care(UNC) have announced plans to create a "partnership" and a "joint operating committee. The Charlotte Business Journal characterizes this as a "merger,' while the Charlotte Observer calls it a "partnership." The relationship is not yet clearly formed -but executives are reluctant to say "merger" given that this could invite additional antitrust scrutiny, but the letter of intent is clear that there would be a single resultant organization.
CHS has been sued by the Department of Justice for anticompetitive behavior- forcing insurers to add "non-steerage" language to contracts that make it difficult to create narrow networks that would exclude some CHS facilities. That lawsuit is pending.
Both organizations are behemoths in their markets. CHS has 2500 beds and 9 hospitals in Charlotte (as well as many rural hospitals). It represents 50% of the hospital market in Charlotte. UNC also has 9 hospitals with about 1400 beds, and represents 40% of the market in the Raleigh metropolitan area.
But their geography (to my knowledge) doesn't overlap. So is such a partnership anticompetitive? Both organizations are nonprofits- and the NC Attorney General should be looking hard to see if this arrangement is in the public interest.
Those advocating for hospital mergers generally talk about
- Back office consolidation (not a big advantage of a partnership - where two corporate structures remain)
- Bulk purchasing (but these two organizations are huge already)
- Improved commitment to serving the underserved and rural areas (which as nonprofits they should provide anyway)
- Need for scale to develop the infrastructure to succeed at accountable care. (But does an organization need 3900 hospital beds and 2800 physicians to have adequate scale?)
Those advocating for hospital mergers are quiet about:
- Increased market strength -which allows a larger system to get higher reimbursement and better contractual terms from health plans
- Scale inefficiency - where a larger organization actually has higher costs as there is a need for more layers of bureaucracy
- Potential loss of local community focus
The lack of geographic overlap doesn't make me feel sanguine that the partnership/merger will not increase medical costs. While patients get their care locally - insurers have to negotiate for contracts across the state - and an organization with a dominant market position in the two largest markets in North Carolina is a bigger threat at the negotiating table than negotiating separately with the dominant player in each of these markets. BCBSNC, United HealthCare, and Aetna each have about 150,000 or more in the Raleigh and Charlotte markets - this type of merger will make it more likely that they will see higher rate increases in the coming years.
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