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Beaumont-Spectrum merger: history says higher costs, not better care

Beaumont Health and Spectrum Health
The east-west merger of Beaumont Health and Spectrum Health creates a 64,000-employee mega-consolidation for healthcare in Michigan. (Left photo provided by Daniel J. Macy / Shutterstock.com. Right photo provided by Spectrum Health)

The megamerger Tuesday of Michigan health care behemoths Beaumont Health and Spectrum Health will likely mean higher costs for consumers and uncertainty about future quality of care, according to some experts and studies of past U.S. hospital consolidations.  

“Whether it’s one hospital joining with another or being bought up by a larger system, there are lots of examples of these around the country, and it never turns out better for patients in terms of their costs, said  Bret Jackson, president of the nonprofit Economic Alliance for Michigan, a nonprofit labor-management group with a focus on health care costs containment.

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“It could sometimes mean that there won't be a negative change but most of the time it leads to higher prices,” he said.

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The studies have suggested mergers can lead to both higher costs as the merged systems acquire greater market share and a drop in quality of care

But that’s not the portrait painted by Beaumont and Spectrum — nor of the state’s hospital industry group and at least one analyst.

Leaders of the newly created BHSH System say the deal will lead to higher quality care and better access. And at least one report — commissioned by the American Hospital Association, an industry group — found that mergers can cut operating costs by more than 3 percent.

“We’re focused on our patients and we’re focused on our people,” Nancy  Susick, interim president of BHSH Beaumont Health, told Bridge Michigan. “We really want to improve health care and … make it as affordable as possible for the citizens and consumers in Michigan.”

Spectrum spokesperson Ellen Bristol told Bridge in an email: The goal is to make “health care more accessible, affordable, equitable and exceptional for the patients and members we serve.” 

On Tuesday, Southfield-based Beaumont Health and Grand Rapids-based Spectrum Health began business together as a combined, not-for-profit health system.

The merger — first announced in June — creates the largest employer in Michigan with 64,000 staff, including more than 11,500 doctors and specialists and more than 15,000 nurses at 22 hospitals and more than 300 outpatient locations.

It also positions Priority Health, a Grand Rapids-based insurer largely owned by Spectrum, to compete with the insurance giant, Blue Cross Blue Shield of Michigan, in southeast Michigan.

Tina Freese Decker, Spectrum’s former president and CEO, assumes the same role for the new BHSH System President & CEO. Beaumont’s board chair, Julie Fream, will assume the same role for the joined BHSH board, which will be made up of seven members of each of the previous systems’ boards.

The behemoth deal was possible after the Federal Trade Commission did not object to the proposed merger. The FTC in September had asked for more documentation, according to Becker’s Hospital Review, an industry publication. 

While it represents a tectonic shift in Michigan's hospital landscape, some say it’s not all that surprising.

Hospitals across the country feel the pressure to scale up purchasing power for equipment and supplies, for negotiations with insurers, to attract staff and connect massive electronic medical records systems, said Brian Peters, CEO of the Michigan Health & Hospital Association, a state industry group.

The Beaumont-Spectrum marriage is “emblematic of the fact that there aren't that many independent hospitals left to acquire in Michigan,” Peters said. 

“What's happening now is that next logical iteration where you have the larger multi-hospital systems, looking to come together and it's driven by many of the same issues.” 

This is not Beaumont’s first fling with consolidation. 

Eight years ago, Beaumont essentially absorbed Dearborn-based Oakwood Healthcare and Farmington Hills’ Botsford Hospital in what had been billed as an “affiliation.” The Beaumont-Spectrum merger was Beaumont’s third attempt to further build out its footprint. The health system courted, then fell out, with Summa Health in Ohio and later Advocate Aurora in Illinois and Wisconsin.

By joining forces, Spectrum and Beaumont are better able to serve consumers and reduce costs, said Marianne Udow-Phillips, founder of the Center for Health Research & Transformation, a nonpartisan health policy center based at the University of Michigan.

“We certainly know what they've said publicly — that from a consumer standpoint this will improve efficiencies, improve quality, and they're bringing these two systems together for synergy and to have better data,” she said.

The key, she and others said, is whether any cost-savings are passed onto patients, primarily through their insurance costs.

“The cost of a procedure (or) the cost of an office visit mostly falls on employers and their groups of employees,” said Allan Baumgarten, a Minneapolis-based market analyst who studies trends and organizations in local health markets.

“The reduction in competition increases the market power and the leverage that the large, merged hospital system now has in their negotiations with Blue Cross Blue Shield, or United Healthcare, or Aetna,” he said.

Some experts are optimistic on how well the merger will serve customers. 

One healthcare investment specialist said the heft of the new system will help the combined system negotiate best prices for consumers.

Even before the pandemic, hospital systems were facing “choppy waters” of rising staff costs and an aging population that will need more care that will be reimbursed by Medicare, which typically pays less than commercial insurers, said Dave Morlock, managing director, at Cain Brothers, a New York City-based investment banking and strategic advisory firm. 

“I think creating bigger, more stable health systems is, in the long run, supportive of creating access to high quality care. That’s a plus to people and consumers,” Morlock said. “The flipside is people will question ‘What does it do to cost?’”

Recent studies suggest that costs to consumers often grow following mergers — even when they involve multiple markets serving distinct patient populations — while the quality of patient care grew worse or stayed about the same

But Morloc noted the FTC decided not to contest the Spectrum-Beaumont merger. And moving forward, another health care giant — Blue Cross Blue Shield, with its negotiating power — will help provide “guardrails” against unjust price hikes, he said.

Dominick Pallone, executive director of the Michigan Association of Health Plans, which represents nearly all of Michigan’s largest insurers, including Priority, said he’s not immediately worried, either.

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The merger may have gotten the federal go-ahead because the hospitals were focused on opposite sides of the state — Beaumont to the southeast corner and Spectrum to the west, he said.

“We would always want to keep an eye on making sure that any provider group — whether it's a hospital, whether that's pharmacies, whether there's primary care docs — you don't want them in one region to all to be owned by the same entity, it would be too large of a controlling interest to too much of a tilt on the power scale,” he said.

“In this case …  their footprint doesn't seem to overlap that much,” he said.

For the insurance carrier, Priority, which now can expand into southeast Michigan, this is a “great thing,” he noted.

And, said Peters, of the hospital industry group, hospitals still have to negotiate — no matter their size.

“The real watchword is ‘value,’” he said. “We want to create value and that equation of course, is cost and quality and appropriateness,” he said, adding “higher quality care costs less in the long run.”

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