Merger by numbers: Hospital systems reveal cost control, investment plans

Barbara Allen

Barbara Allen

By Sarah Colson and Jeff Keeling

This one came with numbers. Thursday, the latest major announcement concerning the proposed merger between Mountain States Health Alliance and Wellmont Health System saw the systems’ leaders lay out some specific figures regarding cost containment for consumers as well as planned investments in the region’s health.

In essence, leaders said a new, merged system would, over a decade, pump nearly half a billion dollars into the region through spending designed to improve people’s physical and mental health – all while holding its annual rate increases to a level a quarter-percent below the national average increase for hospitals. The systems have also committed to keeping services at all existing hospitals for at least five years post-merger – including non-tertiary community hospitals, whose operation currently negatively impacts the systems’ bottom line by $11 million a year, MSHA CEO Alan Levine said.

Wellmont CEO Bart Hove said the systems see a path toward the large community investment despite what would be state-regulated cost controls and the continuation of community hospital services.

“The savings are generated by the operation of our system and the efficiencies we gain by placing our systems together, coupled with the enhancements provided by seeking best practices across our health system (and) reducing unnecessary duplication of services,” Hove said. Hove, Levine and the systems’ board chairs, MSHA’s Barbara Allen and Wellmont’s Roger Leonard, answered questions at the Bristol Chamber of Commerce hours after the systems released a 34-page “Pre submission report.”

The state of Tennessee and Commonwealth of Virginia would regulate the cost cap, should both approve merger requests that Hove said the systems plan to file late this month or early next, after additional public input in the wake of the new document. Approval would leave the merger regulated by a “Certificate of Public Advantage” (COPA) in Tennessee, and a “cooperative agreement” in Virginia.

Once a complete application is filed, Tennessee will have 120 days to review and approve or deny it, Virginia 150 days.

Alan Levine

Alan Levine

The latest document reveals the systems – which must show the benefits of their merger outweigh its anticompetitive drawbacks – plan not only to cap rate increases, but also to cut already-negotiated “automatic inflators” built into current long-term contracts with insurers.

“One of the commitments we made at the front end is we will only do this if we believe we can constrain the growth in cost of health care,” Levine said. “Existing, fixed-rate increases that have already been agreed to by the payers, after the first year of the merger once we start achieving the synergies that we expect to accomplish, will decrease by 50 percent for that first year after the merger.”

For instance, if Blue Cross Blue Shield has agreed to pay 5 percent more for services in 2018 than it did in 2017, and the merger synergies are achieved before then, that increase would be 2.5 percent instead.  After that, insurance companies would pay annual increases a quarter-percent below the nationwide average.

COPA about more than just consumer protection

The bigger benefit to the merger, the speakers claimed Thursday, will be long-term. It will come in the form of an increasing level of health among the region’s people, partly through the targeted investments laid out in the pre-submission document. Along with helping the economy in the short-term, Wellmont’s Leonard said, the long-term effect should be to drive down overutilization of hospital services.

Such an outcome will be crucial, if it’s achieved, in creating a healthier population and workforce, and in driving down overall health care expenditures. “That’s going to be substantial savings for our families and our employers in the region,” Leonard said. “That’s probably the real bang for the buck over the long term, not just capping the growth rate (of charges).”

The merger’s focus not just on consumer protection but on population health will be written into the COPA in Tennessee, and into the rules that regulate it. That makes the proposed merger and COPA different than the several COPAs that have been granted previously in other states, according to a lawyer and a planning official from Tennessee’s Department of Health who are working to finalize the rules that will govern the COPA. They spoke to News and Neighbor Dec. 30.

“(COPAs) in the past have all been economically driven and measured, concerning cost containment and cost efficiencies and those types of things,” said Jeff Ockerman, director of the Department of Health’s division of health planning. “Our rules are unique so far, in that we’re the only ones that talk about population health improvement, and demonstration of making sure that medically underserved populations continue to have access, or have better access to care and services.”

Malaka Watson is an attorney with the department and was the primary author of emergency rules governing the COPA. (A comprehensive article on the rules is at

“It’s something new for us as well as Tennessee and the hospital systems, but we really are trying to take sort of a panoramic approach in terms of looking at it from all angles,” Watson said. “Population health is obviously high on the list, but balancing that with the economics and how it will impact consumers is a high priority as well, so we’re trying to make sure we have the right resources to help us effectively evaluate the application once we receive it.”

The rules and state supervision are a critical element if any merger – which the Department of Health must approve – is to withstand potential challenges from the Federal Trade Commission or others concerned with its anticompetitive effects. Recent Supreme Court decisions played into the rewriting of Tennessee’s Hospital Cooperation Act, which added an element of “active state supervision” and said it was state policy, “in certain instances, to displace competition among hospitals with regulation.”

The supervision and the policy displacing competition are part of a “two-pronged” test, something Levine commented on Thursday. So did Ockerman, who said, “that’s why we’ve worked so hard on our rules – to make sure that they show an active state supervision framework.”

Levine said a state-regulated merger can bring the best results long-term for the region’s health care consumers, citing his experience regulating health systems in Florida and Louisiana.

“No entity knows the state better than the state,” he said. “We think Tennessee and Virginia have a much better understanding of the health care landscape of Southwest Virginia and Northeast Tennessee than anybody else does.”



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