Major Merger: Lifespan, CNE, and Brown merger promises local control of care – threatens price increasesProponents of the merger argue that consolidation will ensure that the state retains and attracts health care professionals and will lead to substantial investments into cutting-edge research programs. On the other hand, the merger risks an increase in health care costs should the merged entity capitalize on the resulting lack of competition by raising prices.
Published on December 5, 2021
By Bilal Memon
The follow piece originally ran in The College Hill Independent, reprinted with permission.
On April 26, Lifespan and Care New England (CNE)—the two largest hospital systems based and operating in Rhode Island—filed a merger application with Brown University as an affiliated partner. Approximately 80 percent of all inpatients in Rhode Island currently pass through a hospital owned by either Lifespan or CNE. Last month, on November 16, the Rhode Island Department of Health and the Attorney General’s Office deemed the merger application complete, kickstarting the 120-day review period. During this period, these state agencies can either approve the merger, approve with conditions, or deny the application.
All aspects of care from routine check-ups to the most specialized procedures stand to be affected by the formation of a new all-encompassing health care network. A merged corporation, with near monopolistic market dominance, would substantially dictate the future of health care in the state. Brown’s role as an affiliated partner further complicates the stakes of the merger. A larger hospital network promises additional research opportunities and dollars to affiliated faculty and a more comprehensive training experience for medical students. But it remains unclear whether the interests of the Warren Alpert Medical School necessarily align with what is best for the rest of Rhode Island.
Proponents of the merger argue that consolidation will ensure that the state retains and attracts health care professionals and will lead to substantial investments into cutting-edge research programs. On the other hand, the merger risks an increase in health care costs should the merged entity capitalize on the resulting lack of competition by raising prices. Untangling the interwoven threads of labor, research, costs, and quality of care is essential towards understanding how the merger will impact the future of Rhode Island; and importantly, whether it should be allowed to proceed.
Central to the narrative coming from hospital administrators is the fear that if the merger is rejected, a larger out-of-state health system will acquire Lifespan or CNE. As a result, health care decisions that affect Rhode Islanders would be made outside of the state and would be less easily subject to the demands of local regulatory bodies, advocacy groups, and unions. Moreover, should a hospital network from Connecticut or Massachusetts lead the acquisition, specialists and other experts currently in Rhode Island might migrate to New Haven or Boston to be closer to the medical communities associated with the Yale and Harvard Medical School, two of the premier academic hospital networks in the country.
There is precedence for this fear. Although talk of hospital mergers has been in the air since 1998 when Lifespan and CNE initially proposed to merge, concern reached a fever pitch between 2017 and 2019 during the merger review process for the Massachusetts-based Partners HealthCare and CNE. Lifespan, at the time, launched an opposition campaign saying that it would increase health care costs and lead to job displacement. Former Governor Gina Raimondo went so far as to call for an in-state merger to avoid the possibility of out-of-state influence. Sensing the sour political climate and a doomed approval review, Partners and CNE withdrew their application.
The Frequently Asked Questions of a joint informational website created by Lifespan, CNE, and Brown reads, “The danger if they [the hospitals] do not merge is the likelihood that, eventually, one or both health care systems would be compelled to merge with national, for-profit hospital systems or other regional systems from the north or south. This could have the damaging effect of moving high-quality, specialty care out of the state, further distancing it from our local communities.” At this point, one could quite rightly interject and ask, if Lifespan and CNE are so horrified by the prospect of external acquisition, why would they be partner to it? And why would the regulatory bodies that review hospital mergers acquiesce to a merger with an out-of-state entity when past and current government officials, including the former Governor, have made their views of the subject clear?
The answer lies in the daunting world of hospital finances. Should Lifespan or CNE stand on the brink of bankruptcy, a merger may be the only way to save the hospitals that serve a vital public function. Rhode Island cannot afford a hospital like the Women and Infants Hospital, home to one of the few intensive neonatal units in the state, to close due to bankruptcy. If this were to occur, acquisition, even by an external corporation, may be preferable.
The hospitals’ balance sheets are confidential to the public, but are a key set of documents that regulators are currently reviewing. The credit ratings for bonds issued by the hospitals give us a proxy for the institutions’ financial stability. Hospitals issue bonds to raise money when they cannot afford their current expenses, such as when planning to build new facilities. Credit agencies assess the probability that the bond will be paid in a timely manner and assign institutions with a “credit outlook.” Through the pandemic, the credit outlook for Lifespan remained positive while multiple ratings agencies, such as Standard and Poor’s (S&P) and Fitch Ratings, downgraded CNE’s credit outlook to negative. The financial instability of CNE’s financial instability falls in line with a larger trend; hospitals across the country experienced a decline in revenue over the course of 2020 as profitable elective procedures were postponed in lieu of immediate COVID treatment. CNE’s credit score only increased recently, with S&P citing the merger as the chief cause for confidence in the future of CNE.
But just as a viewer of nightly news might hear of the trillions of government debt and fear the imminent demise of the American economy, to focus only on credit ratings would be to paint too grim a picture of the state of Rhode Island health care. If one reads the press releases from Lifespan, CNE, and Brown, it would seem that the health care system is flush with green. Brown, for its part, pledged to spend $125 million over the next five years in the new entity to support new research. Lifespan and CNE also pledged an additional $10 million over the next three years to “identify and improve the social determinants of health.” While the exact uses for the pledged money have yet to be determined, the promises speak to the liquidity of the healthcare industry. If the hospitals have millions to spend on vague future programs, it is hard to believe they are on the edge of shutting down.
When pressed, hospital executives insist that their organizations are not at imminent risk. After Representative Joseph Shekarchi expressed concern about the future of CNE’s Kent County Hospital in Warwick, CNE’s President, Dr. James Fanale, told the Boston Globe that the health system is “resilient.” Dr. Fanale said, “We’re not going belly up. We’re not going to close.”
Proponents of the merger are walking a thin tightrope between casting doubt on the strength of their businesses by insisting that external acquisition is looming and maintaining confidence in the “resilience” of the system, possibly a hedge in case the merger is not approved. Parsing these rhetorical gymnastics, we can conclude that while the hospitals are financially strained at present, it is unlikely that they are on the brink of collapse.
We cannot declare the argument for the merger mute just yet. While fear of external acquisition is the most potent manifestation of the desire to keep care local, threats to local access remain even without the threat of an out-of-state takeover. Namely, partners of the merger argue that Rhode Island is at a competitive disadvantage in the labor market for specialists and other highly skilled medical professionals who often seek employment near or in areas with active research. After the merger, the hospitals say, Rhode Island can better compete with neighboring Connecticut or Massachusetts for specialists.
Enter Brown University and the Warren Alpert Medical School. Currently, Brown is partnered with seven affiliated hospitals, including both Lifespan and CNE facilities. Medical students train and faculty members conduct research in these locations. If the merger is successful, dozens of locations will be added to Brown’s network, creating an academic health care system that would follow patients literally from birth to death. According to the Dean of the Medical School, Dr. Jack Elias, in an exchange with the College Hill Independent, “The main reason [the merger will benefit the School] is that it will help us advance training for the medical students.” Students will have access to the same patients as they jump from different hospitals with different records and physician groups. For example, as is often the case, a baby with health issues may be first treated at Women & Infants, a CNE hospital, but when they are older, they may end up at Hasbro’s Children Hospital, a Lifespan hospital.
The same phenomena, better access to patients throughout their lifecycle, explains how the merger might benefit research. The addition of new hospitals with different areas of focus creates new opportunities for Brown faculty. Consolidating patient data into a single system allows for longitudinal studies that track patients over their life. While individual patient records are easily electronically shared across hospital systems, linking patient records systematically poses legal and logistical challenges.
To what extent does the new research produced in partnership with Brown benefit those not directly affiliated with the University? Rhode Islanders may save a trip to Boston or New Haven for access to experimental procedures and specialists in areas where new research is directed—changes especially important for those populations without reliable means of transportation. But these gains stand to be overshadowed if prices for treatment rise due to a lack of competition between hospitals. In arguing that the merger will allow the hospitals to stave off future acquisition, proponents are implying that hospitals stand to financially benefit from the merger. Executives cite cost reductions created by efficiencies in the management of patient records. However, health care experts across the state say that price increases are a likelier source of future revenue growth.
In response to the prospect of the merger, the Office of the Health Insurance Commissioner (OHIC), the state agency responsible for regulating health insurers, published a working paper characterizing the health care landscape in Rhode Island. The report concluded that the local health care market at present is relatively competitive compared to markets nationally. And while the price of healthcare services in Rhode Island is below the national median, hospital utilization is above the median. These facts taken together suggest that consumers and patients currently benefit from the vitality of health care competition in the state, which the merger puts in jeopardy.
Cory King, Chief of Staff at OHIC and the primary author of the paper told the Indy, “Based on a review of publicly available data, the Rhode Island health care system has done a good job keeping hospital prices in check. Some of that relates to market structure and some of that relates to market structure and some of that relates to regulation.” King continued, “If you have a change in market structure that exerts upwards pressure on prices, that could have a harmful impact on affordability.”
Both studies that analyze the relationship between competition and prices across space (cross-sectional) and those that examine trends of prices in a specific location across time before and after mergers (longitudinal) point to the positive effect of consolidation on prices, i.e., mergers increase prices. In 2020, at the request of Congress, the Medicare Payment Advisory Commission reviewed an extensive swath of cross-sectional and longitudinal reports and concluded, “The preponderance of evidence suggests that hospital consolidation leads to higher prices. These findings imply that hospitals seek higher prices from insurers and will get them when they have greater bargaining power.”
Patients are not the only actors that stand to lose if the hospital market consolidates. Lifespan and CNE are among the largest employers in Rhode Island, with Lifespan the state’s largest private employer. Over the past few years, nurses’ unions and the hospitals have been engaged in a series of contentious contract negotiations centered on the untenable nurse to patient ratio. A spokesperson for the United Nurses and Allied Professionals told the Indy, “The real problem for the Union is the staffing issues. That is definitely the number one issue in negotiations.”
As a result of the shortage, nurses are stretched thin and overworked. Some nurses fear that the merger would give hospitals more power in labor negotiations to slow hiring of additional nurses, letting the patient to nurse ratio balloon. Lenny Cioe, a nurse and a candidate for State Senate, told the Indy, “Their [the hospital’s] main cost is nursing and staff. With the merger they are going to try and lower the ratio between nurses and patients.” He continued, “Healthcare will, I’m sorry, put profits over people.”
Cioe went on to contest the hospitals’ account of how the merger would streamline paperwork. He said, “As is, all the computer systems talk to each other. All this is doing is creating a corporate monopoly in healthcare in Rhode Island.”
Lifespan and CNE are 501(c)(3) nonprofits. However, it does not follow that the hospitals are uninterested in increasing revenue and cutting costs. Presidents of both corporations receive salaries in the millions and are judged by their boards, as boards are wont to do, by fiscal outcomes. When the credit rating of CNE slumped, the President of CNE forewent his salary, an experience he would surely not like to regularly repeat. It is a rare occasion when recourse to ‘basic economics’ is straightforward. At risk of sounding glib, let us remember that monopolies, with few exceptions, are bad for consumers and workers alike. Nowhere could the stakes of this truism be higher than in cases of life and death.
Bilal Memon is wary about merging, be it in traffic or in the healthcare system.
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