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Larger Hospital Systems Loom in New Jersey’s Future, New Report Forecasts

Encyclopedic report assesses hospital consolidation and mergers, new ways to deliver services to patients

New Jersey could see hospital systems larger than any yet seen in the state, as medical facilities look to grow and find new paths to reach patients, according to a new report.

While a few chains have long covered South Jersey, the central and northern regions of the state could soon join them, according to a report published by the Robert Wood Johnson Foundation this week.

If the proposed merger of the Meridian and Hackensack University Health systems is completed, for example, the combined system would have 26.3 percent of net patient revenue and 23.8 percent of admissions in the state’s six central counties. It would also have 14.9 percent of patient revenue and 16 percent of admissions in the eight northern counties, based on 2013 data.

Similarly, if the proposed partnership between the Barnabas Health and Robert Wood Johnson University systems were to become a full-blown merger, the new system would handle 32.6 percent of admissions in central Jersey and 21.9 percent in north Jersey.

Combined, Meridian-Hackensack and Barnabas-RWJUH would account for slightly more than 56 percent of central Jersey admissions.

The report lays out five reasons why New Jersey hospitals are seeking to expand:

  • To reach communities with economic and population growth;

  • To gain leverage in negotiations with insurers;

  • To make it easier to invest in health information technology, like electronic medical records;

  • To become capable of managing large populations of residents; and

  • To react to a decline in inpatient admissions, which fell 3.1 percent in New Jersey in 2013, from 1.117 million in 2012 to 1.084 million.

Minnesota-based healthcare analyst and consultant Allan Baumgarten wrote the report, drawing on interviews with healthcare leaders in the state, along with data collected from the state government.

The report is accompanied by an interactive database created by NJ Spotlight that is searchable by hospital or by system.

Baumgarten said yesterday hospital trends in New Jersey are similar to those in other states, but New Jersey is a “couple of years behind” the country in seeing hospital consolidation and the growth of hospital affiliations with nationally known systems.

The Federal Trade Commission will likely scrutinize New Jersey hospital mergers to see if they are large enough to reduce competition and lead to higher prices. Baumgarten noted that the FTC has been very active over the past decade, both in blocking hospital mergers and stopping hospitals from buying doctor groups.

Baumgarten said regulatory scrutiny is one reason why some hospitals are seeking affiliations with renowned medical centers instead of pursuing more mergers. Hospital executives say to themselves: “We don’t want to have to deal with those sorts of (antitrust) objections, what are other strategies that we can pursue?”

Baumgarten suspects that the proposed Hackensack-Meridian merger and the potential RWJUH-Barnabas combination would both pass FTC review. That’s because the market share they would control in the state’s different regions would be less than the thresholds that normally trigger FTC action. However, he added, that decision will depend on exactly how the FTC defines each system’s market.

“I think that these hospitals would say, ‘we are not just part of a statewide market … The relevant geographic market extends to New York City and its suburbs and into the Philadelphia area,” since large numbers of New Jerseyans seek care in those areas, he said.

Rutgers Center for State Health Policy Director Joel Cantor noted that the report pulls together various assessments of hospital mergers from recent years (more than 20 New Jersey hospital acquisitions have been proposed in just the past two years). It also outlines how large the market share is for the various growing systems.

Cantor said that the FTC will likely drill down to a more local level, so it’s still not clear whether the federal agency would approve the potential mergers.

“Should there be an RWJ-Barnabas merger, one would have to look closely at the potential impact on prices,” Cantor said. He noted that the two largest hospital systems could one day control most of the central Jersey market.

“The fact that you’re creeping to 50 percent -- it’s eyebrow raising,” Cantor said, adding that there’s ample research showing that hospital market consolidation leads to higher prices, “so it’s not just a theoretical thing.”

The report also suggested that current merger trends would continue, which raises the possibility that Morristown-based Atlantic Health could look to join Hackensack and Meridian in the future.

Even if the FTC doesn’t step in, growing hospital consolidations could lead to New Jersey legislators considering a bill like the one advancing last week in Connecticut, which requires the state to consider not only how hospital sales affect services, but also how they affect healthcare prices.

Further, the report notes the growth of for-profit chains in the state, including the expansion of California-based Prime Healthcare, and touches on the blurring of for-profit and nonprofit boundaries, with the partnership of Hackensack University Medical Center and Plano, Texas,-based LHP Hospital Group. They jointly operate the former Mountainside and Pascack Valley hospitals.

“These deals are not one size fits all; purchasers are local and national hospital companies, nonprofit and investor-owned,” according to the report. “Some of the hospitals to be acquired or that will merge were in financial distress, while others are strong financially.”

The report also examined how out-of-state hospitals are building a presence in New Jersey. They include mergers, such as the proposed acquisition of Atlantic County-based AtlantiCare by Pennsylvania-based Geisinger Health System and the growth of Prime in North Jersey.

But the rising number of affiliations and strategic alliances is even more striking, both in New Jersey and nationally. For example, the Valley Hospital’s move to join the Cleveland Clinic’s cardiology network or Virtua’s partnership with the Children’s Hospital of Philadelphia encourage New Jersey residents to receive treatments in the state rather than crossing over into New York or Philadelphia.

The most prominent of these agreements was Cooper University Health Care opening a comprehensive cancer center with the University of Texas M.D. Anderson Cancer Center.

“The message is that New Jersey residents can get actual M.D. Anderson-quality oncology care close to home,” according to the report.

And out-of-state providers are opening their own facilities in New Jersey, including Memorial Sloan Kettering Cancer Center of New York establishing a diagnostic and treatment center in Basking Ridge, Somerset County. Crain’s New York Business reported this week that New York-based hospital systems may look to buy hospitals in New Jersey.

The report finds that hospitals are continuing to pursue different strategies in response to a trend encouraged by the federal Affordable Care Act, moving away from basing healthcare payments on each service that patients receive and shifting toward paying providers to keep patients healthy and help them manage their health.

One strategy is to build accountable care organizations with insurers or federal programs like Medicare and Medicaid.

Hospital and physician groups are viewing ACOs as a way to transition toward managing the health of entire populations of patients, using methods like analysis of patient data and employing nurses to coordinate care before and after patients leave a hospital.

Only three of 10 New Jersey organizations that started participating in the Medicare Shared Savings ACO program in 2012 and 2013 saved enough money so far to profit from the program. If participating providers save money, Medicare pays them half of the savings.

“For those of us who have been watching these things for 15 or 20 years, there’s a feeling of déjà vu here,” Baumgarten said, noting that in the 1990s, some healthcare providers tried for several years to shift toward receiving payments based on assuming the risk for managing patients’ health.

“The pendulum is swinging very slowly back to providers assuming risk in a variety of ways, but whether it will swing all the way to where providers are assuming full risk for most of their patients is something that remains to be seen,” Baumgarten said.

This movement could prove a steppingstone for hospitals launching their own insurance plans, like CarePoint in Hudson County did when it started a Medicare Advantage plan that now covers 6,000 people, or working with insurers, like Meridian is with a Geisinger Medicare Advantage plan that covers 6,500.

The report also examined the rise of two kinds of healthcare clinics that aim for convenience: the clinics in retail pharmacies led by advanced-practice nurses and doctor-led urgent-care centers, which offer quicker, less costly alternatives to visits to doctors’ offices or hospital emergency rooms, at least for some services.

“These clinics are responding to and capitalizing on a demand for convenience that traditional medical clinics are usually not offering,” according to the report.

Clinics in retail pharmacies generally have an affiliation with a local provider, so they can refer patients for treatment beyond what they offer. CVS owns 34 of the 43 retail pharmacy clinics in the state.

AtlantiCare, Valley and Virtua have opened urgent-care centers, which offer an opportunity for hospitals to divert visits that would be inappropriate for emergency departments to a less costly setting, according to the report. But it also noted a second reason for hospitals to be interested in these centers: they can extend their reach into more affluent areas.

In “some cases, establishing urgent care clinics (or physician offices or wellness centers) at some distance from the system’s hospitals is also a way of challenging competitors on their own turf,” the report said.

Katherine Hempstead, who directs the health insurance program for the Plainsboro-based Robert Wood Johnson Foundation, said the organization commissioned the study to furnish information to New Jersey stakeholders about recent changes in the structure of the healthcare delivery system. In particular, foundation staff members were interested in the issue of consolidation -- since it’s been shown to affect healthcare prices -- as well as the emergence of new sources of outpatient care.

Disclosure: The Robert Wood Johnson Foundation provides funding for NJ Spotlight’s health coverage.

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