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Proposed RWJ-Barnabas Merger May Portend More Consolidations Statewide

While studies find that most mergers lead to higher prices, healthcare executives point to improved ‘population health management’

jones and ostrowsky
Barnabas Health President and CEO Barry Ostrowsky and Robert Wood Johnson Health System President Stephen K. Jones.

New Jersey may soon learn whether having larger hospital systems leads to improved healthcare – and if history is a guide, the outcome is very much in question.

The proposed merger of Barnabas Health and Robert Wood Johnson Health System announced yesterday would instantly create the state’s largest hospital system – an 11-hospital behemoth that would outrank the Hackensack Meridian Health system proposed only eight months ago.

The newly merged healthcare system would have more than $4.5 billion in operating revenue, as well as 260,000 inpatient visits, 2 million outpatient visits, nearly 700,000 emergency department visits, and nearly 30,000 employees.

Both Barnabas President and CEO Barry Ostrowsky – who would serve as in the same positions under the proposed RWJ Barnabas Health – and RWJ President Stephen K. Jones – who would lead efforts to strengthen a merged system’s relationship with Rutgers University – cited the ability to improve “population health management” as a key benefit of the deal.

“Population health management” aims to improve the health of an entire population of patients by sharing data and other resources across a wide range of healthcare providers. A prominent example is the accountable care organizations that have been used by hospitals and insurers to coordinate the care of chronically ill Medicare patients.

The executives see the geographic scale of the proposed merged system -- stretching from Essex and Hudson counties in the north to Mercer and Ocean counties to the south -- as an opportunity to improve patients’ access to more specialists based closer to where they live.

In addition, they point to the systems’ close ties with the two Rutgers medical schools in Newark and New Brunswick, as well as the opportunity for the combined systems’ staffs to learn from one another, as a way to bring the highest-quality and most-advanced care to patients.

But academic research of such mega-mergers has also pointed to an increase in costs in a healthcare system that can ill afford them.

For example, a Robert Wood Johnson Foundation report published in 2012 that synthesized several different studies found that increased hospital market concentration leads to higher prices without improving care.

“Most often, what you see subsequent to this market consolidation is an increase in price and charges, which means higher premiums that get passed on to individuals and employers,” said Sujoy Chakravarty, a Rutgers Center for State Health Policy assistant research professor. “There’s also a lessening of competition in terms of patient choice.”

Chakravarty also said a national trend in hospital mergers has been picking up steam, which would be a cause for concern if it leads to higher prices. He said he hasn’t studied the specifics of the RWJ-Barnabas merger.

Chakravarty said one reason why hospitals have been seeking to expand through mergers is the financial pressure that they face from the ongoing shift toward being paid based on their performance, rather than on the number of services they provide.

One factor that mitigates the danger of higher prices is the differences in the markets served by the two systems.

While they aren’t very distant – Robert Wood Johnson University Hospital-Rahway is only 11 miles from Barnabas’ Newark Beth Israel Medical Center – they aren’t direct competitors and tend to serve different geographic markets.

Ostrowsky said that he’s aware of the studies showing that mergers raise prices, but “that was not in the motivation to do this transaction.”

He said that both systems are already large enough to negotiate fair prices.

“We don’t need any enhancement in our ability to negotiate fair prices,” Ostrowsky said. He later added: “It was never our intent at any stage to say, ‘Now that we’re this much bigger, we can demand higher prices.’”

Jones said that effective “population health management” should itself lead to lower prices, as patients receive appropriate care before their healthcare costs spiral.

“The goal of (increasing) size and scale is to keep people well,” Jones said, adding: “Our goal is to reduce the overall cost of healthcare.”

Chakravarty sounded a note of skepticism about claims that larger size in and of itself would lead to benefits.

“It’s not obvious to me why you need common ownership,” to improve population health management. “The point is to have clinical care coordination,” which can be done through a variety of arrangements short of mergers, he said.

“Based on research, there is not concrete evidence that larger scale or size” necessarily lead to better care, Chakravarty said.

Ostrowsky said that the geography of a merged system would actually benefit patients -- for example, the three Barnabas hospitals in Monmouth and Ocean counties would be closer to the specialists at Robert Wood Johnson University Hospital in New Brunswick than they are to Saint Barnabas Medical Center in Livingston.

Jones highlighted the potential for a wider range of patients to benefit from both Rutgers medical schools, as well as the Rutgers Cancer Institute of New Jersey. He added that the RWJ patients could benefit from the behavioral-health programs developed by Barnabas.

The details of how the two systems would be integrated await state approval, which is required under the Community Health Care Assets Protection Act. The systems have already cleared one hurdle, receiving an OK from the Federal Trade Commission. Ostrowsky said it was important to receive federal approval before announcing the merger, which was foreshadowed six months ago when the two systems announced they were exploring a “partnership.”

In addition to Saint Barnabas and Newark Beth Israel, Barnabas Health includes: Clara Maass Medical Center in Belleville; Community Medical Center in Toms River; Jersey City Medical Center in Jersey City; Monmouth Medical Center in Long Branch; and Monmouth Medical Center Southern Campus in Lakewood.

The Robert Wood Johnson Health System has four hospitals: Robert Wood Johnson University Hospital in New Brunswick and Somerville, as well as RWJUH-Hamilton and RWJUH-Rahway.

A recent study found that the merged system would have 32.6 percent of patient admissions in New Jersey’s six central counties, as well as 21.9 percent of admissions in the eight northern counties.

In addition to Ostrowsky leading the merged organization and Jones serving as the “chief academic officer in the office of the president,” the two hospital boards would be evenly represented in the merged entity.

While other executive positions weren’t announced yesterday, Ostrowsky likened a merged system’s ability to build its leadership to a baseball manager’s ability to “fill out a lineup card with real all-stars.”

“This is a transaction of two very strong transactional partners” with “no desperation, no need for one to bail out the other,” Ostrowsky said.

Betsy Ryan, president and CEO of the New Jersey Hospital Association, described both systems as well-respected and well-established.

Noting the Hackensack-Meridian merger, Ryan said, “I think it’s a sign of the next generation of hospital mergers. Industry experts have predicted that we will continue to see hospitals consolidate into larger systems as hospital adjust to dramatic changes in healthcare” both in New Jersey and nationally.

“This change is driven by healthcare reform and the growing emphasis on managing population health and providing more integrated and coordinated care,” she said.

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