Hospital mergers exacerbate already tense relations with insurers

Expect to see more mergers driven by the healthcare overhaul, industry watchers say. One prominent example is Johns Hopkins Medicine, which is reaching further south to extend its turf. Last year, it added Suburban Hospital in Bethesda, Md., and it is currently awaiting an OK to add Sibley Memorial in Washington, D.C., to its lineup of hospitals and other facilities.

Evidence has suggested that consolidation can lead to higher prices, something the feds already are keeping a close eye on. After a 2000 merger of two Chicago-area hospitals, the Federal Trade Commission noted steep price increases. In 2008 the FTC forced the two hospitals to negotiate with insurers separately.

In another case that year cited by KHN, two health systems nixed plans to merge after the FTC filed a complaint against Fairfax County, Va.-based Inova Health System's plan to merge with Prince William Health System. The deal that would have given Inova nearly three-fourths of the Northern Virginia market and would have driven up costs for employers, consumers and insurers.

For hospitals, there are benefits to consolidation. It's a way to cut overhead, according to Becker's Hospital Review. And it's easier to hire groups of doctors if you're not a standalone facility, KHN reports. It's easier getting funds for new services or equipment. Consolidating can also position systems to qualify more easily as accountable care organizations, or ACOs.

However, hospitals that consolidate will find themselves butting heads with insurers, KHN reports. A larger market share would give hospitals better leverage when they negotiate with insurers for bigger payment increases. But because insurers are under pressure to keep their premium hikes down, they may just threaten to walk. The Kaiser article gives an example of how a hospital that didn't accept the insurers rates the first time received a termination notice twice this year from an insurer.

Andrew Oliveira, senior medical director for Aetna in Seattle, told KHN that hospitals are asking for double digit payment increases. "None are in the single digits," he said. "We're seeing requests for 10 percent to 40 percent."

To learn more:
- read the Kaiser Health News story
- see the Becker's Hospital Review article

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