Smaller hospitals target risk sharing in collaborations
Harrington HeathCare CEO Ed Moore sees benefits in teaming up, especially for patients.
Lynn Nicholas of the Massachusetts Hospitals Assocation: Despite the benefits, mergers are still complex transactions.
Large hospitals and health care systems in Massachusetts and beyond are exploring potential mergers with the intent to save money, but will smaller hospitals in Central Massachusetts follow that trend?
While mergers cannot be ruled out, local industry insiders say the region's community hospitals may have a closer eye on sharing risk with other providers, which may be one way to reduce health care spending without being scooped up by a large health care system, or losing autonomy by merging with a hospital in a neighboring community.
This type of risk-sharing arrangement is on the minds of executives at Harrington HealthCare in Southbridge. The hospital system, which includes a physicians' group, is in talks with Gardner's Heywood Hospital about pooling patient populations to negotiate lower-cost contracts with health insurers, according to Harrington President and CEO Edward Moore.
Moore said creating a larger patient population dilutes the cost of providing care for those patients, which would benefit both Harrington and Heywood as the health insurance industry transitions from a fee-for-service model to a managed care system that pays providers a pre-established amount to care for each patient covered by a contract. But he noted that talks are in the early stages.
“My hope is that it will yield some nice results where we would mutually benefit … and be a pioneer in establishing something that was not a merger, but rather improved both of our (abilities in caring for patients),” Moore said.
Harrington and Heywood may be joined by UMass Memorial Health Care (UMMHC) in exploring risk sharing with another provider. UMMHC and Baystate Health, based in Springfield, announced last year that they're considering pooling patients to save money.
Though the systems have declined to discuss their plans in detail, UMMHC may be interested in sharing risk with Baystate, which operates a provider-sponsored health plan.
State review required
According to David Seltz, executive director of the Massachusetts Health Policy Commission, UMMHC, Harrington and Heywood have not yet notified the commission of plans to pursue risk-sharing arrangements. But if there are proposals, he said, they will be brought before the commission for review as required by state law.
Since the commission began reviewing merger and collaboration proposals last year, as the 2012 state-cost containment law commands, numerous risk-sharing plans and other proposals have come before the panel, according to Seltz. Providers offer detail on how they plan to reduce the cost of care while improving quality and access for patients. Seltz said risk sharing absolutely have the potential to meet those goals, which state health care reform was meant to encourage, but the commission is also guarding against deals that could drive up expenses for low-cost community hospitals, a scenario that's more likely when a large system is acquiring a small, independent hospital.
“Are they going to keep that low-cost community hospital a low-cost community hospital? That's something we're very interested in promoting,” Seltz said.
A potential deal between Harrington and Heywood may accomplish this, given that the two organizations are near “mirror images” of each other, according to Heywood President and CEO Winfield Brown, and are looking to control costs as the health insurance market turns to the managed care model and as federal payments decline.
But it's not the only way hospitals have looked to curb costs. Heywood, for example, merged with Athol Memorial Hospital in 2013, and the two hospitals now share administrative overhead. And the numerous partnerships Heywood has with both UMMHC and Saint Vincent Hospital in Worcester allow Heywood patients to be seen on site by specialists from the Worcester hospitals.
Harrington HealthCare maintains similar relationships with larger hospitals. For example, intensive care specialists monitor Harrington patients remotely, allowing them to stay close to home while receiving necessary intensive care, according to Moore.
“I think we have the best of both worlds, where we are independent and we have geography that allows us to maintain that independence, but we can refer to UMass and St. Vincent,” Brown said.
Brown went on to predict that there will be a lull in actual mergers in Central Massachusetts in favor of collaborations that don't require a transfer in ownership or changes in governance.
To the east, a different dynamic
The picture is a bit different in the Greater Boston area. For example, Partners Health Care, the state's largest system, wants to acquire South Shore Hospital in Weymouth, a deal the Health Policy Commission has warned may actually drive costs up.
But Lynn Nicholas, president and CEO of the Massachusetts Hospitals Association (MHA), said there is plenty of incentive for health care systems and hospitals to avoid mergers.
“Mergers are extremely complicated,” she said. “They require governance changes, (as well as) bond covenants (and) other issues that have to be taken into consideration (such as) permission from the government.”
Nicholas said consolidation and integration in the hospital industry has certainly not reached its end point in Massachusetts, but given the nature of mergers, hospitals will seek to reduce spending through participation in risk-based insurance networks, as Harrington, Heywood, and possibly UMMHC are exploring.
As networks see more participation by patients, Nicholas said it will become “harder and harder” for providers not to join up.
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