If Lifespan and Care New England do fail to merge their hospital networks it could be viewed as par for the course in an industry finding that when it comes to mergers, the Emperor has no clothes.
But don’t be too quick to judge, said Edward J. Quinlan, president of the Hospital Association of Rhode Island, for not all the evidence is in yet. And according to financial statements still being gathered for fiscal year ending Sept. 30, “the patterns will not be as obvious” in Rhode Island to suggest that one form of doing business – independent or network – is better than another.
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“You will see a mixed record of operating losses,” with some hospitals showing “a slight surplus,” and others both “slight and significant losses.”
But to make a broad generalization about the effectiveness of hospital networks in helping to keep hospitals afloat would be unfair at this time, “again, because the history is too short,” Quinlan said. “Life’s not that simple. This isn’t baseball.”
Although just a few short years ago the idea that no health care facility could survive on its own in such a volatile landscape was commonplace, today there are actually consultants who make their living helping hospitals to “un-merge.”
Probably the biggest failure was this year’s painful divorce of Stanford and the University of California hospitals at San Francisco, but even before that the signs were coming.
Take a 1998 study by the Washington, D.C.-based Economic and Social Research Institute, which investigated hospital mergers in the St. Louis and Philadelphia markets. Not only did researchers not see much evidence of efficiency but they said mergers may actually be “hampering the downsizing of the health care market.”
Although it only viewed mergers in the early stages, the study found mergers didn’t reduce total hospital capacity or consolidate specialized services. In fact, merging allowed some hospitals to “resist market forces that would otherwise lead to closure and clinical consolidation” – thus protecting “inefficiency and excess capacity rather than reducing them.”
After tracking hospital reconfigurations in 52 cities dating back to the 30s, Alan Sager, Ph.D., professor of health services at Boston University School of Public Health, would seem to agree, concluding that hospital mergers offer “artificial solutions to real problems.”
Gary Young, also an associate professor of public health at B.U., while agreeing with Quinlan that “the evidence is not terribly clear,” said that anecdotally at least the recent trend for hospitals to merge into integrated delivery systems is “being viewed right now as not very successful endeavors.”
In the mid-80s when hospital mergers first gathered steam and focused on small hospitals they usually worked. But more recently, Young said, such endeavors have “involved fairly large hospitals” including teaching facilities where it’s more difficult to combine accredited affiliations and “powerful clinical chiefs.”
There’s sort of a backlash against “this popular notion or myth that mergers are the way to go,” Young said. “It actually turns out to be a big mistake.”
In effect, said Sager, it’s been “free market fanaticism” that has forced hospitals to compete, even if they don’t want to. Citing the mid-90s merger of Massachusetts General and Brigham & Women’s hospitals, he said that although the two giants joined with promises of dramatic financial savings “they haven’t produced any evidence that they’d saved a penny.”
As Boston’s two largest hospitals “there were no real economies of scale” and each continued to operate as two separate facilities, in part because clinical chiefs refused to give up their kingdoms.
“There are no small egos involved,” Sager said, adding that directly after the merger they even built a new obstetrics facility “in a city already amply supplied,” spending “dozens of millions” on services that weren’t really needed.
“To call this a merger to save money was absurd. It was a merger to gain bargaining power [and] form a common front,” Sager said. “It’s a response to payers efforts to squeeze hospitals, it’s all trench warfare,” he continued. “What we need is a peace truce.”
”My general view is that there have been some problems with hospital mergers,” said Frank Sloan, a health policy researcher at Duke University, adding that while in many cases horizontal mergers limit competition it isn’t clear that scale and scope economies generally justify them.
“As for vertical mergers, including ones in which hospitals have gotten into the insurance business, they have been difficult to manage due to different cultures and ways of doing business,” Sloan said. “The HMO business looked much more attractive two to five years ago than now.”
Young pointed to the joining of Beth Israel Hospital and New England Deaconess about four years ago under CareGroup Health System, which also includes Mount Auburn and New England Baptist hospitals. (A few years ago, Care New England also wanted to join CareGroup, but Attorney General Jeffrey Pine blocked the merger.) “There’s been bloodshed all over the place,” Young said, because while CareGroup has tried to integrate departments, clinicians and influential physicians at the hospitals “created all sorts of clamor” and some even left.
”Trying to meld those cultures into a single entity is very difficult,” Young said, noting that Beth Israel was more decentralized, academic and research minded while Deaconess had a hierarchical, less open-minded organization.
He said Care Group and Partners Healthcare System Inc., parent of Mass. General and Brigham and Women’s, have both been in the red, “not necessarily due to the merger” but to the infamous Balanced Budget Act of 1997, which strangled hospitals and health care groups by slashing Medicare reimbursements.
That’s something folks should keep in mind before disparaging health care mergers in general, Quinlan said, especially since the phenomenon in New England is only about 10 years old, so it can’t be viewed outside the context of massive cuts in federal and third-party reimbursements.
“You have to look more at the reasons the institutions sought systems then the results of them to date,” Quinlan said.
“A lot of hospitals are losing money regardless of their ownership type,” Young agreed, predicting that in the next few years mergers will decline and “collaborative arrangements” and joint ventures that pool resources without necessarily combining assets will increase. “The potential for cost savings is more limited but more realistic.”
Young said the merger debacle in between UCSF and Stanford and the huge amounts of money “they spent trying to stay together” is sending a sign to hospitals across the country, of the pitfalls of trying to save a marriage that was doomed from the start. “There are lots of autopsies on that one.”
John Gillespie, senior vice president for strategic planning at Lifespan, said last week that although Lifespan “did its homework” when forming in 1994 with Rhode Island and Miriam Hospitals, it has also learned much in the intervening years regarding how best to combine. He said the real strength of a merged system resides in “the strength of its partners,” and that Lifespan’s main purpose is to support individual hospitals as well as represent members with payers and the legislature.
He said a parent can also help distinguish its hospitals by joining forces in clinical research and academic programs to “create a much better whole than the hospitals themselves can provide on their own.”
“It is something that is evolving,” Gillespie said, adding the corporation’s plan ultimately extends beyond state lines. “Obviously we are still pursuing Care New England” he said, but in Rhode Island, “after that I think that’s as far as we’re going to go.”
He said that while financially Rhode Island Hospital could still do better, that Newport, Miriam and Bradley Hospitals are all doing better than they did on their own. “Over all, we’re doing better than we thought we would.”
But Sager sniffed at Lifespan’s acquisition in 1997 of New England Medical Center, adding that “here we call it Wingspan,” referring to what researchers viewed as Lifespan’s strategy of “swooping in” to collect potential merger partners. “That merger does nothing for them [Lifespan],” he said, although it’s definitely helped stabilize the Boston hospital, which observers said was at “death’s door.”
Financially, Sager said he can’t figure out why Lifespan acquired New England Medical Center and wonders if Lifespan knows, adding that “many intelligent people park their brains at the door when it comes to thinking about money and health care.”
