By Yen Duong
Even after last year’s failure to merge with UNC Health Care, Atrium Health isn’t giving up on consolidations. Last week, Wake Forest University, Wake Forest Baptist Health and Atrium announced that by the end of the year, they would have a proposal for how to join forces.
While the prestige of a new medical school may appeal to Charlotteans, large mergers can end up hurting patients’ wallets, say health economists. And on top of negotiating their deal, the two health care giants need to prove to the attorney general and the Federal Trade Commission that they can combine without harming customers.
News of the proposed reorganization comes on the heels of Atrium’s January acquisition of Macon, Ga.-based Navicent Health and Wake Forest Baptist’s September 2018 purchase of High Point Regional from UNC Health Care.
Per state law, Atrium cannot expand more than 10 miles away from Mecklenburg County. That’s because Atrium is a hospital authority, a quasi-governmental public entity, rather than a private nonprofit corporation like Wake Forest Baptist.
Last summer, Atrium attempted and failed to remove the 10-mile limit through legislative action.
The law, however, does not hold in Georgia, so Atrium was able to add Navicent’s seven hospitals to its roster along with the five hospitals it manages in South Carolina. In all, Atrium now owns 25 hospitals and manages 26 affiliated hospitals across the three states.
Last March, a proposed “virtual” merger between Atrium and UNC system fell apart. That deal would have created a third umbrella corporation to oversee both organizations and avoid the hospital authority law.
It’s unclear how Wake Forest Baptist, which reported a $7 million net operating loss in fiscal year 2018, will combine with Atrium, which reported $300 million in net operating income in 2018. Wake Forest Baptist is headquartered in Winston-Salem, as is Atrium’s rival Novant Health.
“[It] would be premature to comment on any specific models,” wrote an Atrium spokesperson in an email. “Obviously, we will structure any combined efforts so that they are in compliance with all applicable laws.”
‘Prices tend to go up and quality tends to get worse’
Last year, Atrium reported about $10.3 billion in revenue with over 62,000 employees, while Wake Forest reported $2.6 billion in revenue and over 19,000 employees for fiscal year 2018, according to financial reports.
“For patients, usually, large mergers are not good,” said Dr. Ashish Jha, a Harvard University health economist. “As competition goes down, prices tend to go up and quality tends to get worse.”
For instance, Jha said that studies have shown people are more likely to die of a heart attack in markets with fewer competitors.
Consumers’ costs increase because larger hospital systems can negotiate higher rates with private insurers, said Dr. Kevin Schulman, a Stanford University professor of medicine. Consumers pay for those increased rates by way of higher insurance premiums and lower take-home pay.
Research by the non-profit Health Care Cost Institute showed that as prices for health care increase, people use fewer health care services. The effect on Charlotte’s inpatient hospital stays was stark: prices were 12 percent above the national average, but use was 20 percent below the national average.
“If [Atrium] merged with Wake Baptist, you basically would have one health care provider cutting across the state,” said Schulman, who previously worked at Duke University. “And whose interests would they be serving? Clearly, it would not be the patient’s interests.”
The organizations will work together to keep “care more accessible and affordable,” a spokesperson wrote on behalf of Atrium. For instance, they could expand CHESS, an organization majority-owned by Wake Forest Baptist which helps hospitals transition to “value-based care,” with reimbursements from patient outcomes rather than the traditional fee-for-service way of paying for care.
“CHESS has had noteworthy success in accelerating change to lower healthcare costs,” an Atrium spokesperson wrote. “This change translates to tens of millions of dollars savings annually to payers, and ultimately employers and patients/consumers.”
Potential legal challenges ahead
Combined, Atrium and Wake Forest Baptist were responsible for almost a third of patient interactions over the 19 North Carolina counties and five Virginia counties served by Wake Forest Baptist.
Across its 34 county-reach, Atrium held 39.2 percent of the market.
According to data from a publicly filed bond prospectus, Wake Forest Baptist, including High Point Regional, and Atrium held 31.4 percent of the 2018 market across Wake Forest Baptist’s service area. Chart credit: Yen Duong.
“Both [Atrium’s] footprint already and Wake Baptist’s footprint is probably already beyond the cut off [for violating anti-trust laws],” Schulman said. “The other interesting thing about the timing is Blue Cross […] has gotten a little more aggressive in terms of negotiating, pushing back on the hospitals, and holding them financially accountable and responsible for the care they’re providing.
“You can also see this as a way to undermine that effort.”
In November, Atrium settled an anti-trust complaint with the U.S. Department of Justice, which prohibited Atrium from telling insurers to preferentially refer patients to its own services versus competitors. That same month, a group of former employees filed suit against Atrium, claiming they had to pay too much for medical services under their health plan.
Atrium and Wake Forest already co-own MedCost, a for-profit company which administers their group health plans. Though a five-year federal investigation into a potential conflict of interest closed in 2016, the government could take legal action in the future.
“The law of our country is very straightforward that mergers that are anti-competitive [and] monopolies that have the potential to harm consumers are generally not allowable,” Jha said. “If there is a good, compelling clinical reason to do it, it makes sense. But often, hospitals do it just so that they have more market power and can negotiate higher prices with insurers.”
Any proposed plan would have to be approved by the Federal Trade Commission before going through, and the N.C. Attorney General’s office would also examine it, Schulman said.
“We actually don’t have a great mechanism in North Carolina for reviewing these mergers,” Schulman said. “[The Attorney General’s office] is really the only agency at the state level that can examine these kinds of combinations, and they’re tremendously under-resourced.”
Earlier this year, N.C. Attorney General Josh Stein conditionally approved HCA’s purchase of Mission Health, after taking into consideration concerns from local leaders and residents.
What about Charlotte’s medical school?
Just last month, Philip Dubois, the chancellor of UNC Charlotte, and Wesley Burks, the dean of UNC School of Medicine, wrote an op-ed in the Charlotte Observer advocating against building a new medical school in the Queen City.
“[At] least for the foreseeable future, there are overwhelming financial, political and practical obstacles to establishing a four-year medical school in Charlotte,” Dubois and Burks wrote.
The op-ed referenced a 2017 report from the UNC Sheps Center for Health Services Research, which reported that by 2035, Charlotte will face a shortage of 343 primary care doctors. Like Dubois and Burks, the report concluded that a new medical school would not solve that problem.
According to data from the Sheps Center report, demand for doctors in Charlotte will grow more than the rest of North Carolina. But supply will shrink or grow slowly. Graph credit: Yen Duong
Only 18 percent of North Carolina medical students end up working as primary care physicians in state five years after graduation, said health policy researcher Erin Fraher of the Sheps Center, a co-author of the report.
Instead of building a new “top 20” medical school, Fraher said Atrium and Wake Forest, which has a medical school ranked 50th in the nation, would better serve the community with a residency program such as UNC’s FIRST program. FIRST speeds medical students through three years each of medical school, residency and service in rural or underserved North Carolina communities.
“When I look at it from a data perspective, that to me makes more sense,” Fraher said.
Though a medical school would bring more prestige, research dollars and jobs to the area, an Atrium spokesperson focused on Charlotte’s increasing demand for more doctors. She also said Atrium’s post-graduate program for nurse practitioners and physician assistants, the largest in the country, can help ease Charlotte’s growing pains.
“As the need for clinicians grows, we stand poised to help fill this need,” Atrium’s spokesperson wrote. “[The new school and programs] will provide critical experience for medical student education through an integrated academic health system.”
‘There’s still a lot to be worked out’
Since 2010, Atrium’s flagship hospital, Carolinas Medical Center, has been designated the Charlotte campus of the UNC School of Medicine. That means that CMC hosts 25 students per year for the clinical half of medical school.
In contrast, Wake Forest Medical School accepts about 140 new medical students each year, and teaches about 1,900 students and fellows across all of its programs.
“There’s still a lot to be worked out,” wrote an Atrium spokesperson when asked about the future of the existing program for third and fourth-year medical students. “[We] will be working through the details in a way that is appropriate and respectful for all involved.”
Though the new medical school was highlighted in the announcement, many prestigious medical schools, such as Harvard, don’t own hospitals, said health economist Jha. Those schools set up affiliate agreements with local hospitals for student rotations.
“It’s not really clear to me why two hospital systems need to merge, in order to open up a medical school,” Jha said. “If Wake Forest wants to open up a medical school in Charlotte, they can.”
Correction: This story has been changed to reflect that only 18 percent of medical students will end up working as primary care doctors in N.C.
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Wake Forest needs to learn how to take care of errors before merging with Atrium. A medical school that bills for errors isn’t something that families want to experience.
(https://sorryworks.net/blog/2018/5/31/doc-great-after-cancer-misdiagnosis-hospital-not-so-much?fbclid=IwAR3fsaTNjeib8-eZcw6QqIZQQWwLOIM0YTP7jafi51tonlI_ZpCRpPFZn1s )