What does the Lifespan / Care New England merger really mean for Rhode Island? – Uprise RI


Lifetime and Care New England merge, with the help of Brown University. Why?

Because the two health systems can hardly make ends meet.

But why are health care systems strapped for cash when the people of Rhode Island spend more on health care than people in many other states?

Because health systems are not paid enough to cover their costs.

At the same time, a third of every dollar spent on health care does not pay for health care. A third party is diverted to pay the administrative costs and the profits of the health insurers.

The root cause of the struggles of our health systems is the ineffectiveness of health insurance as it exists today.

  • Healthcare system mergers address symptom of hospitals inability to pay bills
  • The cause is the enormous inefficiency of our complex health insurance industry: 30% of the money you spend on health care is spent on other things.
  • Lifespan and Care New England will be financially stable after the merger, but jobs will be lost and the public will also pay more for care.
  • The fusion will make the symptom go away, but the disease will always be with us.
  • The solution? Replace this very inefficient health insurance system with Medicare For All. Medicare is six times more effective than private insurance and is the choice of patients as the most popular insurance plan.

Mega hospital deal between Lifespan, Care New England and Brown has long-term implications for Rhode Island, says Ted Nesi, editor of 12 News Nesi’s Notes this Saturday.

So what long-term changes are likely for the people of Rhode Island? This is not all good news, I’m afraid.

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According to a 2018 study on the mergers of the health system by the National Board of Compensation Insurance (NCCI) mergers have big effects. (NCCI is the accredited rating and statistical organization for workers’ compensation in Rhode Island and 34 other states.). The most important effects of health system mergers are:

  1. 15% to 30% reduction in hospital operating costs. Mergers allow consolidation of duplicate services and better integration of care. This is why health systems are merging. However, since the most important operating cost of a health system is labor, reducing operating costs results in job losses.
  2. Another bad news is that these reductions in operating costs do not translate into lower health care prices. According to NCCI, prices for healthcare systems rise 6% to 18% after mergers. After the merger, the public sees higher costs, not lower ones. This is not surprising. Health systems use their increased market share to obtain higher reimbursements from insurers.
  3. In addition, the same volume of services, or more, is provided when one site replaces two. For many patients, the amount of care delivered is increased. At the same time, there is no evidence that mergers lead to better outcomes in the community served by the merged health care system, so the extra care appears to be unnecessary care, that is, care that do not improve health.

In summary, mergers lead to higher healthcare costs, not the lower costs you might expect. And people are losing their jobs.

So why this merger?

Both Lifespan and Care New England are in dire financial straits. For several years, they have lost money or had very small surpluses. It’s worrying. Failed hospitals become the target of for-profit hospital chains which tend to have worse outcomes and even higher costs than nonprofit institutions.

Lifespan and Care New England will reduce their combined annual operating costs by several hundred million dollars. The new organization can be expected to negotiate higher prices for its services. More income and lower expenses will improve their financial situation.

As the costs of care in the new organization will increase, businesses and the public will see higher health insurance premiums. This is bad news, except for the insurance company. If health insurance premiums go up, insurance companies increase premiums, giving themselves more income and more profits. For-profit insurers like United will see their stock prices rise. This is their main business goal. The Blues’ nonprofit plans will see their cash position improve.

Both health systems and insurance companies will benefit from this merger and the public will pay more. That is why the US health care system spends a third of every dollar on activities that do not improve the health of patients. Over a trillion dollars is wasted each year on high prices and churning out paperwork. This is roughly double the money spent on defense.

The leaders of health care systems and insurance companies are not mean. With healthy finances, health care systems continue to provide health care and insurance companies generate higher profits. This is what they are required to do: health systems by their state charter, insurers by their fiduciary responsibility towards shareholders.

Health care costs are so high and continue to rise faster than general inflation because no one who negotiates prices in the health care system is being rewarded for lowering the price paid by businesses and the public. So no one at the bargaining table truly represents the patient or the employer.

A few figures describe how our current health insurance system has failed to control costs.

Inflation since 2000 has increased the cost of goods and services by 52%, the price of stocks listed on the S&P 500 by 62% and on the Dow by 76%. Over the same period, the cost of healthcare rose 267% and the share price of the largest health insurer, United Health Care, by 770%.

In other words, since 2000, the cost of health care has increased four times faster than other prices, and the country’s largest health insurer has seen its value increase 15 times.

United is not an Apple or a Facebook or a Tesla where true innovation warrants huge rewards. United is doing business in a mature industry selling pretty much the same product they’ve sold for a hundred years. What is happening is that private, for-profit and not-for-profit health insurance is draining money from the health care system and the rest of the US economy. With tax breaks and supportive legislation, insurers are siphoning off an increasing slice of the healthcare pie every year as healthcare systems like ours struggle to deliver care.

And what about Brown’s contribution of $ 125 million? Rhode Island spends billions of dollars a year on health care. $ 125 million spread over time is not much. If the new organization created an academic medical complex with a national reputation, that would be wonderful. But a university medical complex would have minimal impact on current costs, access issues, and health care disparities in Rhode Island. Established academic medical centers tend to have clinical outcomes that are not as good as the best community hospitals for treating common ailments that make up the bulk of people’s health problems. University medical centers have much higher costs, however, which is not what we want.

Considering the health insurance system we have, the Lifespan and Care New England merger is the best possible deck chair layout on Titanic health insurance. But we don’t need new lounge chairs, we need a new course that avoids the iceberg of for-profit multi-payer health insurance.

The current private insurance system, with several competing companies, has overhead (administration and profits) of 18% or $ 1.3 trillion per year, enough to pay the Department of Defense twice. Medicare has a 2% surcharge. The difference between 18% and 2% would fairly pay health care systems and physicians for every patient in the United States. Oh, and by the way, you could see any doctor and go to any hospital you want if Medicare was the only insurer.

There are some things the government does best. Health insurance is one of them. The Lifespan and Care New England merger tells us we need a different health insurance system.

About the Author

Jim Cowan MD MPH

Dr. Jim Cowan MD is an expert in health insurance policy.

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