BJC, St. Luke’s hospital merger could cost Missourians

ST. LOUIS — The planned merger of BJC Healthcare and Kansas City-based St. It could be the largest deal since the merger of Christian Health Services. BJC system.

And the partnership could impact workers’ salaries statewide, far beyond the BJC’s $3.3 billion salary.

A study of the hospital’s finances showed that the merger of the two tax-exempt health care chains would create a clear market leader in Missouri. BJC is the largest healthcare system in St. Louis, accounting for 40% of patient discharges in the market and generating $6.3 billion in total revenue. St. Luke’s is Kansas City’s second-largest system, and in the state he has nearly a 20% market share in the second-largest metropolitan area.

“This gives them a lot of leverage in terms of bargaining power with insurance companies,” says Ryan, an independent health policy consultant based in St. Louis and former director of the Missouri Health Foundation.・Mr. Barker said this immediately after the partnership was announced on May 31. “One of the things that always worries me about consolidation is the impact on pricing.”

Medical experts said the deal, which was announced on May 31 and is expected to be signed later this year, could be aimed at giving the consolidation program greater leverage in negotiations with Missouri employers and insurers. said to be of high quality. These health care payers will be even more motivated to agree to the hospital’s price demands to keep both the St. Louis and Kansas City systems in-network.

“Hospitals continue to try to gain an edge over insurers,” he said. John Romley, a professor at the University of Southern California, where he studies health policy and economics. “Ten years ago it was. It’s still the same today.”

And health economists say there is clear evidence that hospital mergers lead to higher prices, which spill over to consumers.

“Insurers facing higher provider prices are raising premiums to employers.” Martin Gaynor, a leading health economist at Carnegie Mellon University, will testify before a U.S. Senate committee hearing in 2021. “Employers pass on the increased premiums to workers in the form of lower wages (or lower wage increases) or reduced benefits.”

Antitrust regulators have focused primarily on mergers and acquisitions of hospitals within metropolitan areas. The combination of BJC and St. Luke’s University is the latest in a trend for healthcare systems to acquire new assets beyond their core markets.

“I think the fact that these are cross-market mergers will help during the intense scrutiny going forward,” Romley said.

However, other, albeit limited, research is starting to point to similar costly impacts of cross-market consolidation. 2019 paper published in Rand Journal of Economics A paper authored by a leading health economist found that cross-market mergers within a single state can increase hospital service prices by 7% to 9%.

Tim GreaneyA professor at the University of California, San Francisco, who studies antitrust issues in health care, says that if the two systems that merge have a common insurer, the hospital system will ultimately have more leverage in negotiations. said that it is the way of thinking. He at the system’s main hospital may not be able to afford to lose one from its network.

According to Greaney, there have been several lawsuits based on this “cross-market theory,” but it has not been widely litigated. And antitrust regulators will need “massive investigations and fact-finding” to prove the cost implications in specific cases.

The ultimate impact of the merger “will depend somewhat on what competitors do,” said Louise Probst, executive director of the company. St. Louis Regional Business Health Coalition, representing many of the region’s largest employers in negotiations with healthcare providers. Competing hospitals may also find it necessary to work with larger systems to accommodate this.

“If left unchecked, there will be several large health care systems providing health care across the country,” Probst said.

Although the literature doesn’t show much consumer cost savings from the merger, Probst said hospitals in the St. Louis area are at least starting to talk to employers about cost inflation. A new federal rule will finally require hospitals to publish prices for their services to shed light on an uncertain market, said Probst, the first St. Louis hospital to do so this year. Agreed to a voluntary cost increase target of 5% in 2023.

That’s the first step, she said. But if senior leaders live in Minneapolis, Chicago, or Boston, this would be much more difficult.

“The silver lining is that there were two health systems in the state, not out of state,” Probst said. “We can still go into rooms with them. They still live in our community.”

The hospital has not said anything other than a press release announcing the merger. Both systems will maintain their own branding and will operate from dual headquarters in each market, according to the announcement. Richard Liekweg, President and CEO of BJC, will serve as CEO of the Integrated Health System, and the first Chairman of the Integrated System will be a St. Luke’s University graduate.

Both the BJC and St. Luke’s declined to comment on the deal or the drivers behind it. A BJC spokesperson, when asked about the academic agreement that hospital mergers would raise rates, said: pointed to a statement from the American Hospital Association filed with the U.S. Senate Finance Committee earlier this month.

In it, the industry group argued that the merger could help hospitals cope with the “extraordinary financial pressures” of recent years, cut costs and boost quality. The group’s testimony to Congress in 2021 argued for one of the country’s few large-scale policies. Health insurers are pocketing the savings hospital mergers generate.

BJC’s and St. Luke’s financial reports show that, like other hospitals, earnings have indeed taken a hit. (Both are non-profit organizations, but like other non-profit hospital systems, they typically earn millions of dollars more than they spend on providing care, and provide executives with millions of dollars in benefits.) paying).

After patients missed lucrative surgeries postponed during the pandemic, the health care system emerged from COVID-19 as wages and supply costs surged due to inflationary markets.

“The last few years have been tough,” said Barker, a local health consultant. “Hospitals continue to lose money and are looking for ways to improve profitability and efficiency.”

BJC increased operating revenues by $293 million in 2022 but could barely meet higher expenses, with operating income of just $25 million in 2021 compared to $153 million . This was due to investment losses in excess of $100 million. Taking into account write-downs on other assets, the company reported a total loss of $170 million last year, compared to a gain of $779 million in 2021.

However, the company’s Q1 2023 financial report shows that profitability is returning. Compared to the first three months of 2022, revenue increased him by $239 million, but expenses only increased him by $133 million. Operating income increased by $60 million from a loss of $46 million last year. Combined with other income from investments, BJC reported his net income of $181 million in the last quarter, compared with a loss of $91 million for the same period in 2022.

St. Luke’s University also had a not-so-profitable year, with operating profit falling from $147 million in 2021 to just $7 million last year. Combining investment losses and pension costs, the company recorded a net loss of $114 million in 2022, compared with a gain of $252 million last year. Operating income in the first quarter was below $1 million, compared to his $7 million increase in the same period last year. Investment gains increased total profit for the quarter to $32 million compared to his loss of $5 million in the same period last year.

St. Luke’s was historically the primary hospital system in the Kansas City area. About 25 years ago, however, it began to face increasing competition from the University of Kansas Medical Center, which became the largest hospital in the region. John Leifera Kansas City-based healthcare consultant and former Senior Vice President of Strategic Planning and Chief Marketing Officer at St. Luke’s University.

“St. Luke’s has always been the king of the hills,” Leifer said. “Then KU woke up, acted and became a very formidable competitor. think.”

St. Luke’s University faces stiff competition from KU for cancer care, said Leifer, and Saitman, a BJC’s highly rated cancer treatment center, is among other major Mayo offerings. It has not gained a foothold in the Kansas City market as much as other treatment options, he said. Clinic in Rochester, Minnesota and MD Anderson Cancer Center in Houston.

“Siteman’s brand is not as strong as it could be in the Kansas City market,” Leifer said.

The two systems have already worked together for over ten years. BJC Collaborativewas founded in 2012 to drive cost savings through group buying and share care best practices. Leifer said there is clearly some advantage in combining systems.

“They spent more than a decade testing this hypothesis,” Leifer said. “After a very long engagement, they are now getting married.”

Post-Dispatch’s Annika Merrilees contributed to this report.