For most North Carolinians, the planned “marriage” between two of their state’s largest hospital systems, UNC Health Care and Charlotte-based Atrium Health (until recently known as Carolinas Healthcare) probably seems like a distant and incomprehensible arrangement involving giant conglomerates and corporate bigwigs.
And, truth be told, such an assessment would not be too far off the mark. Under the plan announced last August to form a joint operating company that would oversee all operations of the two combined operations, the newly formed entity would control more than two out of every five hospitals in North Carolina, making it the third-largest nonprofit hospital system in the entire country.
This is a big, multi-billion-dollar deal that grew larger still when Atrium recently announced another proposal to acquire Navicent Health, a Georgia-based hospital system.
It is also, however, despite its many complexities, an incredibly important and potentially problematic development to which all North Carolinians should pay very close attention.
Fortunately, a lot of prominent voices in health care and political spaces agree. This list includes Blue Cross Blue Shield NC CEO Patrick Conway, State Treasurer Dale Folwell, employee benefits consultants, and numerous health economists—all of whom have raised concerns about the deal.
The central and overriding issue: rising costs.
While there have been a lot of unfounded and politically motivated claims about health care costs in recent years – particularly from conservatives bent on slandering and undermining the Affordable Care Act and Medicaid expansion – there is no denying there is a genuine cost problem in the U.S. health care system.
As of 2016, total U.S. health care spending accounted for over $3.3 trillion dollars, roughly 17.9 percent of the national economy. What’s more, health care spending has grown rapidly, having increased by 400 percent since 1990. Though we spend more per capita on health care than any other country, we generally cover fewer people and utilize less care than other wealthy countries. And, with the exception of cancer care outcomes, the U.S. generally has worse health outcomes than peer nations. So why does the U.S. spend so much more on health care than other countries?
As the late great health economist Uwe Reinhardt would say, “It’s the prices, stupid.” We Americans pay dramatically higher sticker prices for the health care we consume than do residents of other high-wealth nations and we get less for it. Reinhardt suggested that this in part because “the payment side of the health care market in the private sector is fragmented, weakening the bargaining power of individual insurers, especially vis-à-vis the increasingly consolidated hospital sector” (emphasis added).
Prices drive our spending growth more than any other studied factor, including population growth and aging, the prevalence of sickness and disease, and the amount of services we actually use. In fact, a recent study found that half of our national’s increased health care spending was linked to increases in health care prices—the amount charged for health care services like medical procedures, physician office visits, pharmaceuticals, etc.—between 1996 and 2013. During that same period, out-of-pocket health care spending per person grew by nearly 35 percent, meaning that patients’ pocketbooks are increasingly getting squeezed by higher health care costs.
As Reinhardt also mentioned, the rise in health care prices coincides with a period of increasing health care provider consolidation. Over the past few decades, health care mergers and acquisitions have taken place both within and across markets – both “horizontally” and “vertically.” While not the only driver of health care prices, consolidation affords these larger entities increased leverage when negotiating with private insurers for reimbursement rates. The byproduct of this increasing consolidation has been higher prices in almost every instance with questionable, if any, improvements in quality of care for patients.
Let’s bring this back to UNC Health and Atrium and their proposed joint venture. Could this joint venture be different? Well, when we think of anticompetitive mergers and acquisitions, we typically think of a business buying up its competitors within the same geographic market in order to create monopolistic conditions. But that’s different from the partnership between UNC and Atrium , which generally serve different regional markets. UNC system President Margaret Spellings echoed this intuitive line of thinking in January:
“We’re both in very competitive markets… So this idea…that prices go up when there’s monopoly-type players, that’s just not the case in this deal.”
So could the UNC-Atrium proposal increase costs? Examinations of similar joint ventures—so-called “cross-market mergers” between entities serving different geographic markets—suggest that they do increase prices, even when they do not create a regional monopoly.
Under a regional monopoly health care system, the system can demand higher rates from insurers because an insurer needs to sell a product that actually covers doctors in that region, and the monopoly system is the only game in town. In the case of a cross-market merger, the newly merged entity gains improved leverage to negotiate higher rates from insurers, but for a different reason.
When these merging entities have a common insurer they negotiate with, their joint leverage is greater than their leverage as individual systems. The State Health Plan or any Blue Cross plan with a statewide network will have to pony up to keep both UNC Health and Atrium providers in its networks, and losing both UNC Health and Atrium would cause a greater loss than losing just one of them. In other words, the joint venture would be nearly too big to barter with and insurers may pay higher reimbursement rates.
The bottom line in all of this: While we may not feel a ton of sympathy for giant insurers like Blue Cross, the hard truth is that when they pay higher prices to providers, they end up reclaiming those costs by raising their premiums on us—the enrollees, employers, and employees.
And if we’re going to pay more, we deserve to know what we’re paying for. UNC Health Care and Atrium Health have suggested the deal will lower costs, improve access to care in rural and underserved communities, and advance quality of care. In response, patients, employers, and regulators alike ought to be asking, “Can they prove it? And is it worth it?”
Brendan Riley is a Public Policy Analyst at the North Carolina Justice Center’s Health Advocacy project.