- Two major non-profit health systems in Texas recently announced their plans for a hospital merger, which is expected to advance cost-effective patient care in the state.
Baylor Scott & White Health, a non-profit based in Dallas, Texas, and Memorial Hermann Health System, another non-profit in Houston, stated on Monday, Oct. 1, 2018, that their boards signed a letter of intent to merge. The two non-profit health systems already employ more than 73,000 individuals over 30 counties in Texas.
Combined, the health systems would operate 68 hospitals and over 1,100 care delivery sites, employing almost 14,000 independent, employed, and academic physicians. The hospital merger would also manage two health plans and nearly 10 million patient encounters annually.
“This is about two mission-driven organizations – both committed to making safe, high-quality healthcare more convenient and affordable – building something transformative together,” Jim Hinton, CEO of Baylor Scott & White Health and future CEO of the proposed health system, stated in the press release. “We must lead the change in our industry, while insisting we continue to fulfill our unwavering commitments to meeting the needs of all Texans.”
Baylor Scott & White Health and Memorial Hermann Health System intend for the proposed hospital merger to enhance medical training and research programs, as well as reduce healthcare costs and improve care quality.
“Together, we believe we will be able to accelerate our commitments to make care more consumer centric; grow our capabilities to manage the health of populations; and bend the unsustainable healthcare cost curve in the state,” Chuck Stokes, President and CEO of Memorial Hermann, said in the announcement. “Through this combined system, we have a unique opportunity to reinvent healthcare and make a profound difference in the lives of millions of Texans.”
Whether hospital mergers truly reduce costs and improve quality is still up for debate.
Recent research from the Charles River Associates for the American Hospital Association (AHA) indicates that hospital mergers and acquisitions can indeed reduce healthcare costs. Acquired hospitals saw operating expenses per admission drop 2.5 percent after a deal, resulting in $5.8 million in savings at each acquired hospital.
The deals also did not negatively impacted care quality, researchers added.
However, other studies have shown hospital mergers to increase prices for patients. Former Federal Trade Commission (FTC) Chairwomen Edith Ramirez reported in 2016 that hospital prices in monopoly markets were 15 percent higher than prices in areas with four or more competitors. And hospitals with just one or two competitors charged between five and six percent more than hospitals with more than four rivals.
The Medicare Payment Advisory Commission (MedPAC) also recently found that hospitals and health systems are less incentivized to lower their costs post-deal.
“Over the years, the market power of hospitals has resulted in limited pressure to constrain costs, resulting in an average cost structure across the United States that is higher than in similar countries (even after accounting for the general cost of living), and in commercial payer rates that exceed even this high cost structure by 50 percent,” the commission explained.
However, Baylor Scott & White Health and Memorial Hermann Health System remain optimistic that the proposed merger deal will advance healthcare not only in Texas, but possibly the nation.
“Baylor Scott & White was founded as a Christian Ministry more than 100 years ago; ever since, it has advanced health and driven change in North and Central Texas,” Ross McKnight, Chair of the Baylor Scott & White Holdings Board of Trustees, stated in the press release. “This proposed combination starts the next chapter in the legacies of service and innovation for both systems. It will not only make a positive difference in the lives of millions here, it will become a national model.”
Large health systems merging has become a national trend. Ten hospital merger and acquisition transactions in 2017 involved healthcare organizations with net revenues of $1 billion or more, consulting firm Kaufman Hall recently reported.
Memorial Hermann brings in almost $3.5 billion in net patient revenue, placing the health system in the 91st percentile, according to data from Definitive Healthcare. Baylor Scott & White is in the 97th percentile, with over $7.2 billion in net patient revenue.
Leaders from both health systems anticipate signing a definitive agreement to merge in 2019.