This week, two of Texas’ largest healthcare systems, Baylor Scott & White Healthcare System and Memorial Hermann Healthcare System, announced that they are going to merge. This new hospital will create a mega-system — which will have long-reaching impact on the people who live and work in Texas.
Healthcare can be complicated and confusing. This is especially true at a time when we’re seeing unprecedented consolidation in the health insurance industry. These mega-mergers have created several conflicts of interest, making it important for employers to take the caveat emptor or “buyer beware” approach.
In 2013, Baylor Scott & White was formed by the merger of the Baylor Health System in the Dallas – Fort Worth Area and the Scott & White Health System in Central Texas (Temple and Austin areas).
In 1997, the Memorial Hermann Health System was formed by the merger of the Memorial Healthcare System and Hermann Hospital in the Houston Area.
So essentially, four independent health systems have become one.
Stats On The Merger
- 68 hospitals
- 1,100 locations
- $14 billion in combined revenue
- 73,000 employees
- The hospitals cover the combined Dallas-Fort Worth, Houston and Austin areas, which have a total of 16 million people—greater than the population of Pennsylvania, Illinois, Ohio or Georgia. If these metropolitan areas were their own state, they would be the 5th largest state in America.
Reasons for the Merger, Per the Official Press Release
- “Making safe, high-quality healthcare more convenient and affordable…”
- “Make care more customer centric”
- “Manage the health of populations”
- “Bend the unsustainable healthcare cost curve in the state”
Other Potential Reasons for the Merger
- Increased bargaining power with suppliers, to lower the purchase price of supplies (e.g., IV fluid, scalpels, MRI machines, etc.)
- Greater bargaining power with insurance carriers (e.g., Blue Cross, UnitedHealthcare, Cigna, Aetna, etc.) to increase reimbursement
- Increased bargaining power with physicians (who technically cannot be employed by the health system) and nurses to control their practices (e.g., productivity, number of patients seen per day/cared for during shift, etc.)
- Greater bargaining power with patients, to have stricter billing and collection practices for out-of-pocket costs
- Lower operating costs by reducing/eliminating redundant internal departments (e.g. Human Resources, Purchasing, Legal, Finance, etc.) and laying off workers. Cutting these departments is often referred to as creating synergies.
- Prepare for a possible ‘single payer’ or ‘Medicare for all’ program by the federal government
- Create its own health insurance plan that collects premiums from employers AND provides care for employees and their families—similar to Kaiser Permanente in California or Intermountain Healthcare in Utah
Implications for Employee Benefits Professionals
- Fully-insured groups in Texas may see the ‘trend’ portion of their renewal increase GO UP to reflect the greater reimbursement demanded by the new merged health system
- Self-funded groups with employees in Texas may see their discounts from their insurance carrier increase, while they still pay more. For example, an arthroscopic knee surgery currently could have billed charges of $16,000 and a 50 percent discount, resulting in $8,000 payment by the health plan. However, that same arthroscopic knee surgery in the new health system could have billed changed of $40,000 and a 60 percent discount, resulting in $16,000 in payment by the health plan. The ‘discount’ is ‘better,’ but the actual cost DOUBLED
- Long Term: If the new health system created its own health plan, it could potentially eliminate the 20 percent mandatory loss ratio of insurance carriers, therefore lowering costs for employers and patients
For example, a 200-employee company is fully-insured with an annual premium of $2 million through a traditional insurance carrier ($10,000 per employee per year, which is about the national average). That insurance carrier pays about 80 percent of that premium in claims to doctors and hospitals, etc.–$1.6 million in claims, $400,000 in administrative costs and profit.
The new health system could charge a premium of about $1.6 million and use all that money to provide care directly for employees and their families—eliminating the $400,000 in insurance carrier administrative costs and profit.
I do not have a crystal ball, but this merger could increase healthcare costs in the short term for employers and employees, but actually decrease healthcare costs in the long term.
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