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‘Question the value’: RI official offers warning about Lifespan-CNE hospital merger

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PROVIDENCE, R.I. (WPRI) – Rhode Island’s health insurance regulator is weighing in on the proposed merger of the state’s two largest hospital systems, warning the deal presents significant risks that could result in higher costs for patients unless closely regulated.

The R.I. Office of the Health Commissioner issued a 25-page working paper Tuesday examining the proposed merger between Lifespan and Care New England, along with Brown University joining as an affiliated partner.  

Health Insurance Commissioner Patrick Tigue, who was expected to present the report to an advisory group later in the day, did not take a position for or against the blockbuster deal. But his working paper outlined how hospital consolidation has almost always led to higher costs in the past, and warned patients don’t necessarily get healthier as a result.  

“If the consequence of a successful merger merely shifts competitive bargaining dynamics within the market, increasing prices without concomitant improvements in quality, then consumers should question the value that they are deriving from the merger,” Tigue wrote in the paper.

The health insurance commissioner doesn’t have regulatory authority to approve or deny the deal, but the insurance market – along with the rest of the state’s health care industry – would be demonstrably affected if the merger works out. For starters, the new hospital group’s market share would total nearly 80% in Rhode Island, according to the paper.  

The review marks the first time a state or federal regulator has offered any type of published insight into the proposed deal, which has been little discussed publicly since the hospital groups and Brown first announced their intention to join forces four months ago.

In the working paper, Tigue examined the state’s current hospital landscape and how the combination of Lifespan and Care New England would likely affect patients and payers. He also outlined five regulatory ideas “aimed at holding the merged entity accountable for improving affordability and improving population health and health equity on a statewide scale.”

The ideas include applying a cap on how much the merged hospital group could earn in revenue each year, improving quality of care requirements, and mandating “evidence-based investments” to improve the health of Rhode Islanders overall.  

“The proposed merger between CNE and Lifespan presents a host of risks and opportunities,” Tigue wrote.

On the issue of cost, Tigue’s research showed that Care New England and Lifespan already operate hospitals with some of the highest prices in the state – a precarious starting point for a merged entity that would suddenly dominate the market.

“Antitrust regulators will need to assess the risk that the merger will create market power for the merged entity and weigh the likelihood that such market power could be exercised to increase prices, given existing constraints within the Rhode Island market,” according to the report.

The paper likewise warned about the potential diversion of patients from lower-cost competitors to higher-price hospitals, noting such a trend would increase overall health care costs in the state. Rhode Island has lower-than-average health care costs compared to the nation, but its utilization of services is “well above the national median,” according to the paper.

Proponents of the merger argue the deal will improve health care, reduce health disparities and create a nationally competitive “economic nexus” around the health care industry, which already represents upwards of 30% of the Rhode Island economy.

In materials distributed when the deal was announced, the hospital groups also argued that the proposal ensures the Lifespan and CNE hospitals remain under local control. Lifespan owns Rhode Island, Miriam, Newport and Bradley hospitals; Care New England owns Women & Infants, Kent and Butler.

“The danger if they do not merge is the likelihood that, eventually, one or both health care systems would be compelled to merge with national, for-profit hospital systems or other regional systems from the north or south,” the hospital groups said at the time. “This could have the damaging effect of moving high-quality, specialty care out of the state, further distancing it from our local communities.”

In a joint statement issued following Tigue’s report, Lifespan and Care New England said they share the commissioner’s goal of “improving access, affordability and quality of health care for all individuals.”

“We believe that building a comprehensive academic health system that leads in research, attracts the best clinicians, and provides high quality care in Rhode Island, is in the best interest of patients, consumers and the state’s economy as a whole,” Lifespan’s Kathleen Hart and Care New England’s Raina Smith said in the statement. “We remain committed to working with state and federal officials and community members throughout the merger process to gather broad stakeholder input and ensure that we are building an AHS that is inclusive and beneficial to all.”

Tigue outlined how some of those ideas present a compelling set of opportunities, explaining that the new hospital group could harness best practices to improve quality and cost of care for patients, while promoting disease prevention and health equity.

But he urged other regulators to take into account all of the available research on hospital consolidation to determine whether that will be possible in this case, and he strongly urged them to consider the proposed requirements outlined in the working paper.

“It is OHIC’s position that the risks outlined in this paper are significant and should command careful attention by regulators and the public,” Tigue wrote.

The Lifespan-CNE deal still needs to get government sign-off from the R.I. Department of Health and Attorney General Peter Neronha, as well as the Federal Trade Commission. Hospital executives have said they want to see the deal finalized before the end of the year, but Neronha has warned the review process is “not a quick one.”

“Obviously, were those two parties to merge along with Brown there’d be a significant market share that they would have in Rhode Island in health care,” Neronha said earlier this month on WPRI 12’s Newsmakers, adding that the deal “raises potential antitrust issues that are going to take some time to sort out, fully understand, and then reach a conclusion about.”

Eli Sherman (esherman@wpri.com) is a Target 12 investigative reporter for 12 News. Connect with him on Twitter and on Facebook.

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