AG Deal Puts Merger in Motion
Last Thursday, Beth Israel Deaconess and Lahey Health agreed to terms with the Massachusetts Attorney General’s Office that will allow them to finalize their merger. This deal was followed by the go ahead from federal regulators that paves the way for the new Beth Israel Lahey Health System (BILH).
This deal between the two health systems will create the second largest system in the state, behind Partners Healthcare. According to a preliminary report by the Health Policy Commission (HPC) released earlier this year, that the new BILH system will encompass 22% of all Massachusetts staffed beds and 19% of physicians.
This HPC report also estimated significant cost increases, including $128.4 million to $170.8 million in annual bumps, helping to set the review process in motion.
The AG deal tries to counter these increases with various measures. These include a 3% cap on price increases by BILH for the first 7 years after the deal is finalized; commitments to better healthcare access for low-income individuals; and requirements for BILH to strengthen physician participation in MassHealth.
Although these are valid efforts to combat a new mega-system’s dominance, this merger is likely a long run set back for Massachusetts healthcare.
The Power of Big Health
Large health systems like the planned BILH in other parts of the country have put pressure on consumers in various ways outside of straight cost increases. These include deals with insurers that require large system’s hospitals to be included within insurance plans.
One example is New York-Presbyterian requiring that their facilities be included in Cigna Corp. health plans. When Cigna wanted to create low-cost plans with Northwell Health made up of only lower cost hospitals, they were forced to include higher cost New York-Presbyterian facilities due to these restrictions. The result: low-cost plans were not formed and consumers are forced to pay for costlier insurance.
New York-Presbyterian is able to create such restrictive contracts because of the significant market power that they carry, the same kind of power that mega systems like BILH achieve through mergers.
Even with cost restrictions from the Attorney General, BILH will still dominate about one-fifth of the eastern MA market. They may not be able to raise costs substantially, but they can still negotiate contracts requiring that their hospitals be in plans. The HPC report describes how Beth Israel already has above average inpatient prices before the merger, so restrictions in insurer contracts would likely lead to higher insurance costs.
Issues with the Deal
Although I believe the Attorney General’s deal is a valiant effort to combat health costs, it still seems like just a band-aid that can only protect against so much.
Many of the restrictions are only short term fixes. Those 3% caps on price increases are only required for seven years. That’s a good bit of time, but gives free reign to a hospital giant after the period ends. Financial commitments for lower income areas are also only required for an eight year span.
Many of the commitments have weak language as well. Concerns over a dearth of physicians being in MassHealth is addressed by having BILH, “make a good faith effort to have all physicians and other licensed providers who are employed by BILH, and all other BILH Providers, apply to participate in MassHealth (if they are eligible for such participation) within three (3) years.”
Phrases like “good faith effort” are not the most enforceable terms and a deal that asks for efforts can only achieve so much. Without stringent requirements, BILH will have the ability to find loop holes and get around aspects of the deal over time.
Overall, the deal addresses many concerns, but in the long run, BILH will be able to exercise substantial control over the region’s healthcare. The merger after all still creates a system where BILH and Partners Healthcare combined will control 44% of all beds and 43% of physicians in Massachusetts.
With the AG’s deal, people will let the merger pass thinking the government has done enough to control BILH. We will see what everyone thinks ten years from now when a few over powered systems have free reign over our healthcare.