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Controlling What We Can Control: The Impact Of Hospital Mergers On Healthcare Costs

Written by Nick Tranguch, Chief Growth Officer

With our headquarters in Eastern Pennsylvania, BSI is currently in the midst of two major hospital mergers. One brings a large national health system to Northeastern PA, and the other brings a large regional system to the Lehigh Valley. As healthcare costs continue to rise, it’s no surprise that employers feel like Neo in The Matrix, just trying to dodge bullets each year at renewal time.

As we meet with our current clients and our future clients, the questions are hopeful in tone.  “So, what does this hospital merger mean for costs?” or “What does this hospital merger do for me and my plan?” are the types of questions we’ve been asked, all with the hope that there is some magic in these mergers that will bring efficiency, scale, and lower costs.

Unfortunately, the opposite seems to be true historically. KFF, an independent health policy organization, noted in a 2023 article that in all previous “cross market” mergers, prices have increased between 6-17% following those previous mergers. Cross-market mergers happen between systems that do not currently operate in the same markets. This reflects what we are experiencing in eastern Pennsylvania right now.

They noted only a small number of studies that have tracked this data, however none seem to show prices declined. A recent Wall Street Journal article also confirmed similar data regarding price increases following a health system merger.

So, what should employers be doing to dodge yet another bullet aimed at their healthcare costs?  It starts with the age old adage, start by “controlling what you can control.” We are unable to control if health systems merge or not, and we may have very little impact on their pricing at the end of the merger. But all is not lost. BSI specifically tracks what our best performing groups are doing to beat trends and control their healthcare costs.

Here are a just a few things our experts recommend that can have a big impact on an employer’s budget:    

  • Plan Design – Employers that offer tiered network plans or even limited network plans that steer members to a specific health system can see improved claim performance. These plans often represent a greater achieved discount vs traditional open network options.
  • Direct Contracting – In some cases, larger employers have the opportunity to work with a health system and negotiate their own contracts, specifically targeting lower costs, bundled services, bulk purchasing of imaging and other procedures that can lead to improved cost controls over time. If you have under 5,000 employees in one geographic area, this may be hard to accomplish unless you are able to combine through a consortium or other buying group that can leverage size and scale.     
  • Effective Risk Transfer – Our best performing groups have effectively stripped as much “fat” or risk margin out of their plans through risk transfer models that leverage scale (typically more than 100,000 combined lives). This allows groups to secure favorable stop loss protection by granting them access to protections not available as a single purchaser. In addition, these groups leverage the transparency and control of being able to dictate all aspects of their plan set up to target specific areas of cost drivers for their individual situation.  
  • Target Rising Rx Costs – Pharmacy trend is outpacing medical trend by a significant margin. Groups can effectively stem this trend by evaluating their PBM contracts and programs that can specifically target high cost specialty drugs and J-Code therapies that can drive significant costs inside a healthcare plan. Our best performing groups follow a procurement strategy outlined by BSI that looks at the whole picture and not just rebates, a buzz word often used incorrectly as the only measure of a pharmacy program.  
  • Incentivize Primary Care – Direct Primary Care (DPC) is also a buzzword but this one comes with some teeth. DPC is something that is picking up traction as a valuable tool in helping leverage the highest volume of care from a utilization standpoint, not cost, but taking that utilization and steering it to either a limited network of Primary Care providers or in some cases, even offering DPC through a virtual medicine vendor. These services can lead to improved outcomes of care, thus lowering the overall cost of care across a member’s life on the plan.      

These are just a few of the buckets worth exploring and will give employers enough to tackle areas where some control can be wrestled back from a market otherwise out of control. If you are responsible for controlling costs in your company and any of the above concepts resonate with you as applicable to your organization, we would love to hear from you. We’d welcome the opportunity to explore how BSI can bring control, transparency and stability to your employee benefits strategy.

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how can we help you?

Contact us at the BSI office nearest to you or submit a business inquiry online.

BSI has proven, time and time again, they stand behind every word they say to you and you are guaranteed to get the best possible options for employees and to also experience better quality services along with significant savings to the agency and/or business.

Anita Jo Paukovits,
Executive Director, Children's Home of Easton