The proposed merger between Spectrum Health and Beaumont Health that would form the largest in-state health system in Michigan has drawn concern from a statewide business-labor coalition that worries about the resulting potential for higher prices.
The Novi-based Economic Alliance for Michigan worries that the new health system created from the merger would have considerable market clout that could lead to higher prices and result in higher costs for employers, President Bret Jackson said.
“We are really concerned about a massive consolidation like this. And it would be massive. It would be a behemoth,” Jackson said. “We are really just concerned about the impact on pricing.”
The Economic Alliance points to studies that indicate hospital mergers do not result in promised lower costs, improved quality and benefits for patients — findings that the American Hospital Association disputed in a 2019 analysis.
Jackson cites a 2020 RAND Corp. study that analyzed what self-insured employers and insurance carriers paid hospitals for care compared to payments they received from Medicare from 2016 to 2018.
The analysis showed that Medicare Michigan paid Spectrum Health hospitals in West Michigan more for care than Beaumont hospitals in Southeast Michigan from 2016 to 2018. That raises concerns about the potential effect on prices for care under the new health system, Jackson said.
RAND researchers noted that “although consolidation is linked with higher prices, it has not been associated with improved quality, and higher-priced providers often do not have higher quality than lower-priced providers.”
Jackson said his phone “kind of rang off the hook” last week after Spectrum and Beaumont publicly announced their intent to explore a merger and create a new health system. All of the callers “were equally concerned about the impact on prices and quality,” he said.
The Economic Alliance represents employers — many of them based in Southeast Michigan — that collectively provide health insurance to 900,000 people.
The resulting new health system would have 22 hospitals, 305 outpatient care centers, more than 7,500 employed, affiliated and independent physicians, and about $13 billion in operating revenue.
Jackson hopes the Michigan Attorney General’s office closely scrutinizes the deal given the potential size and market clout of the new health system.
The state attorney general typically reviews transactions when a for-profit entity acquires a nonprofit organization to ensure the protection of charitable assets. That was the case years ago in Grand Rapids in the proposed acquisition of nonprofit Metro Health by the for-profit Tennessee-based Community Health Systems Inc. That deal never moved forward. Metro later merged into the University of Michigan Health System.
In instances when two nonprofit entities merge, as proposed under the Spectrum-Beaumont deal, the attorney general may conduct a review.
“I think there should be a robust review by the attorney general,” Jackson said. “This is a major financial transaction, and because they are nonprofit entities they have a duty to serve the citizens of Michigan. So, the attorney general as that watchdog has the obligation to make sure the citizens of Michigan are being served appropriately.”
Spectrum and Beamont executives hope to complete regulatory reviews, due diligence and integration by the fall.
In a statement Monday to MiBiz, Spectrum Health said that “attorneys notified the Corporate Oversight Division of the Attorney General’s Office in advance of the announcement and have been in communication with that Division to ensure that it has all the information it needs to be confident that this integration will not result in any harm to the charitable assets held by either organization. Because this is not a merger, divestiture, asset sale or a transaction in which a for-profit organization is involved, we are hopeful that the Attorney General will have no concerns.”
In a statement to MiBiz last week, AG Spokesperson Kelly Rossman-McKinney said: “Yes, we have an important role in preserving charitable assets — including non-profit hospitals. Charitable purpose entities must give the Attorney General written notice before finalizing transactions that may impact charitable assets.”
CONSOLIDATION CONCERNS GROWING
Allan Baumgarten, a Minnesota health care consultant who tracks the Michigan market, believes federal trade regulators as well will take a close look and “definitely could” challenge the merger, which is reviewed under the 1976 Hart–Scott–Rodino Antitrust Improvements Act.
The Federal Trade Commission (FTC) has grown increasingly concerned with health care consolidation, Baumgarten said. Even though Spectrum and Beaumont lack market overlap, the size and scale of what they want to create may very well draw close scrutiny at both the federal and state levels.
“There’s enough research out there that says mergers of this scale within states, and maybe even crossing state boundaries, do in fact result in higher prices, and we think that will be something that will get serious study by the FTC and the Michigan AG’s office,” Baumgarten said.
Baumgarten recalls how the FTC “vigorously” but unsuccessfully challenged the 1997 merger between Butterworth Hospital and Blodgett Memorial Medical Center that created Spectrum. A consent decree to settle that case included temporary caps on price increases by Spectrum.
“The FTC has a long memory and they’re inclined to look very carefully at mergers of this size, especially if they think it has a likely chance of creating additional market powers for the merged entity and the significant potential for that market power to be used in ways that are not beneficial to the communities that are served by these health systems,” he said.
FOCUS ON AFFORDABILITY
Spectrum Health President and CEO Tina Freese Decker said last week that she does not expect any difficulties with regulatory reviews because the two health systems operate in separate markets that do not overlap.
“We believe this new organization will benefit patients, our team members and the state of Michigan, and we have confidence that regulators will respect the fact that our organizations are mission-driven,” she said. “I do not anticipate regulatory concerns. If any are raised, we will address those.”
While executives have declined to offer specifics on potential cost savings under the proposed merger, Freese Decker stressed that “our focus is affordability,” citing the Spectrum’s focus on a value-based approach to care and to improving health.
“Our focus is on driving greater value,” she said. “What we are trying to do is help people be healthy. If they can be healthier, avoid the emergency room, get all of the things they need so that they don’t have to go into the hospital, we’re going to save money for the health care system, and when you do that then the total cost of care is reduced.”
Jackson said Economic Alliance members’ concerns aren’t against Spectrum Health. The Grand Rapids-based health system has always been a high-quality care provider that scores well in the semi-annual report card on hospital safety issued by The Leapfrog Group, and the Economic Alliance has presented several quality awards to Spectrum, he said.
In the Leapfrog Group’s most recent report in April, Spectrum Health’s Lakeland Community in Niles, United Memorial in Greenville, Zeeland Community and Big Rapids hospitals all received an “A.” Spectrum Health’s Lakeland Hospital in St. Joseph, Blodgett Hospital in East Grand Rapids and Butterworth Hospital in Grand Rapids all received a “B.”
“I don’t think there’s any lack of knowledge or comfort with Spectrum. Around our table we try to interface with Spectrum quite a bit and people know who they are and respect the work that they do,” Jackson said. “They are known as a good, high-quality system.”
In last week’s press conference, Beaumont Board Chair Julie Fream said the two health systems “were committed to the highest quality care” and that she was “confident that together we will raise the bar for health care across our state.”