Blue Cross NC Says Carolinas, UNC Hospital Merger Will Raise Costs

February 05, 2018 - The potential hospital merger deal between Carolinas HealthCare System and UNC Health Care recently hit another roadblock. Blue Cross Blue Shield of North Carolina (Blue Cross NC) announced that the organization opposes the proposed health system combination.

According to local news sources, Blue Cross NC President and CEO Patrick H. Conway, MD, MSc, told the health systems that the potential hospital merger deal may increase healthcare costs.

“Blue Cross NC has a responsibility to our customers to help slow rising health care costs,” wrote Conway, the former CMS Deputy Administrator of Innovation and Quality. “After a thorough review of independent research which shows that when healthcare systems combine costs for consumers go up, Blue Cross NC cannot support your proposed combination. However, we are open to continued dialogue if you can demonstrate how this combination will lower costs and improve quality over the long-term.”

UNC Health Care’s Board of Governors also recently questioned the proposed hospital merger deal’s legality, The News & Observer reported. The board member, Tom Fetzer, who also lobbies for Blue Cross NC, raised questions regarding the deal, accusing UNC Health Care of conducting secret discussions about the partnership without communicating with the Board of Governors.

The health system stated that it has met its legal obligations and board members are looking into Fetzer’s conflicts of interest.

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Carolinas HealthCare System and UNC Health Care signed a letter of intent in August 2017 to combine clinical, medical education, and research resources. Health system officials stated the deal is not a legal merger because the proposed deal does transfer assets out of the state’s control.

However, the deal would still create a 50-hospital system that would employ over 90,000 individuals under a joint company.

With such a large health system stemming from the proposed hospital merger deal, stakeholders have questioned if the deal will reduce healthcare costs as intended.

Recent research indicates that hospital merger deals do not always result in lower costs. A 2016 New York State Health Foundation report showed that increased market power, which large merging health systems acquire, led to higher healthcare costs in the state.

Researchers found that more expensive hospitals that charged between 1.5 to 2.7 percent more than their peers tended to have increased market leverage, large health system participation, and less competition. Increased market leverage hindered competition, product innovation, healthcare transparency, and hospital cost containment methods that could lower price variation and increases, the report added.

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The New York State Health Foundation’s findings are also emerging nationwide. The Medicare Payment Advisory Committee reported in 2016 that hospital consolidation and increased market power discouraged hospitals from reducing their costs.

“The key insight of these analyses is that hospitals can control their costs if they have a financial incentive to do so,” the commission stated. “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.”

Carolinas HealthCare System is no stranger to the argument. The health system faced a federal antitrust lawsuit in 2016. The Department of Justice (DoJ) and the North Carolina Attorney General’s office claimed that the health system engaged in anticompetitive behavior that led to higher healthcare costs.

Healthcare stakeholders are now raising similar concerns with the proposed combined health system. Like Blue Cross NC, Lawton Burns, a professor at the University of Pennsylvania’s Wharton School, questioned if the merged entity would drive down costs.

“Bigger is not better. Bigger is more consumer-unfriendly,” she recently told The Charlotte Observer. “What they do is they put these systems together to basically have more bargaining power with the insurers. They don’t improve quality of care, they don’t reduce the cost of care and they don’t necessarily increase access to care.”

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But Carolinas HealthCare System and UNC Health Care argue that the new hospital chain “will provide clear solutions for healthcare’s most pressing challenges by focusing on four strategic areas: increasing access and affordability, advancing clinical care expertise, growing their renowned academic enterprise and contributing to the region’s economic vibrancy.”

The health systems anticipated a final hospital merger agreement by the end of 2017, but the health systems have yet to release a final agreement.