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Implications of consolidated health systems

by Daily Inter Lake
| February 19, 2023 12:00 AM

Logan Health and Billings Clinic revealed last week that the two independent hospital systems plan to engage in negotiations this year aimed at combining into a single, new organization.

The boards of the two hospital systems are expected to reach a preliminary agreement by spring, with final approval happening sometime this summer.

The deal would represent a massive shakeup of Montana’s health-care landscape, affecting some 10,000 clinical and non-clinical workers across two dozen hospitals and related clinics that serve a geographical region stretching from Northwest Montana, along the Hi-Line, south to Yellowstone County and into Wyoming. It would position the yet-to-be-named organization among the largest health systems in the U.S.

For a regional size comparison, the Mayo Clinic Health System based in Rochester, Minn., includes 20 hospitals, while Sanford Health in South Dakota has 46 hospitals and Washington-based Providence has 52 hospitals.

The announcement comes as hospital systems nationwide stare down dire post-pandemic economic forecasts for the health-care industry. According to an American Hospital Association report, the effects of a workforce shortage alongside inflation have put most U.S. hospital systems in serious financial trouble. The report states that hospital expenses are expected to increase by nearly $135 billion in 2023, driven predominately by increased labor costs. Some projections show more than half of U.S. hospitals taking a loss this year.

The CEOs at Logan Health and Billings Clinic said the potential union offers a chance to better navigate the rough waters ahead.

“By joining, the two geographically complementary organizations can be stronger together and better positioned to adapt to the rapidly changing healthcare environment,” a press release announcing the deal Wednesday stated.

They’re betting that the consolidated health-system offers patients better services and more specialty-care choices, while also gaining operational efficiencies and more power in recruiting and retaining physicians and nurses.

The potential integration reflects a national trend of health-care conglomeration — currently the 40 largest health systems now own 2,073 hospitals across the U.S., according to a Forbes news report — with most conglomerates touting the advantages of economies of scale.

But consolidation can have negative consequences for consumers, and the federal entity that oversees these deals has taken note.

A Federal Trade Commission policy paper issued last year offers fair warning that concentrated health-care markets without competition tend to increase health-care costs and reduce quality.

“When hospitals have substantial market power, their negotiating leverage with health insurers increases and they often are able to demand higher prices, which are then passed on to consumers in the form of higher premiums, copayments, deductibles, and other out-of-pocket expenses. This holds true with for-profit as well as not-for-profit merging hospitals,” the Commission states. Workers can suffer, too, with flat wages being another effect of conglomeration, the report continues.

But in an interview with the Daily Inter Lake, the Logan Health and Billings Clinic CEOs assured that the deal shouldn’t be perceived as “anti-competitive” and that in rural settings like Montana, consumer choice can actually improve. When groups join forces, smaller hospitals often benefit.

“Keeping care in rural communities is what improves access and improves choice,” Billings Clinic CEO Clint Seger said, noting the two organizations’ commitment to serving Montana’s outlying towns.

The governing boards of Logan Health and Billings Clinic have a monumental task ahead of them as negotiations begin, with the outcome affecting a huge swath of the Northern Rockies.

May the thousands of workers and hundreds of thousands of patients hanging in the balance not be forgotten in the process.

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