Trenton – The CEOs of Barnabas Health and Robert Wood Johnson University Health this week announced final plans to merge and create the largest hospital chain in the state, once the state Attorney General’s Office approves the deal.
The new not-for-profit entity, RWJ Barnabas Health, will have combined revenues of $5.4 billion from 11 acute care hospitals, four children’s hospitals, a behavioral health center, ambulatory care centers and five fitness and wellness facilities.
Hospital mergers have been happening for decades but the passage of the Affordable Care Act accelerated the pace. Obamacare is largely funded by Medicare funding from hospitals, and the law is structured to financially reward hospitals that can prevent an illness rather than treating it. Most healthcare analysts advise that bigger is better, or at least more stable in the volatile health care industry.
What does it mean for patients?
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Barnabas Health CEO Barry Ostrowsky and RWJUH CEO Stephen Jones said thecombined strength of both systems, spanning eight counties, will give patients access to the widest array of professionals, services and expertise honed at its many teaching hospitals and the Robert Wood Johnson Medical School. The focus will be on keeping people healthy and out of the hospital, he said.
“Together we can do it on a bigger scale, and that’s why size and geographic coverage will matter,” Ostrowsky said.
Jim Agnew, vice-president for The Camden Group, one of the nation’s largest health care consulting firms, said mergers allow hospital systems “to become more nimble for quicker access to capital and quality employees.”
“What we see happening when two well-respected high quality organizations merge is they share clinical resources. If one has a great oncology program and one does not, they will able to share that service line into new markets,” said Agnew, who has advised hospital networks in New Jersey although his firm was not involved with the Barnabas Robert Wood merger.
“There is new investment once they come together – it may be an investment of people, infrastructure and new service lines. And consumers, large employers and insurers will be dictating those needs,” he added.
Studies that have examined quality at consolidated hospitals offer mixed reviews.
In a 2012 study on the impact of hospital consolidation, the Robert Wood Johnson Foundation (independent from the hospital chain) found: “Patients are . . . free to exercise choice of hospital within a network (which is often quite broad). Hospitals have an incentive to compete on quality in order to attract patients within a network.”
But, an analysis of 11 studies examining quality care, nine of them found competition was important to preserving and improving quality.
A 2005 article in Health Affairs, a policy and health care industry journal, found that merged hospitals improved quality by cutting back on the number of “overused procedures.” Quality measured by patient safety and mortality stayed the same, the article said.
What does it mean for the cost of health care?
Barnabas and Robert Wood Johnson CEOs predict they will be able to contain health care costs because with an emphasis on keeping people healthier, fewer people will need hospital care.
Research says mergers typically drive up health care costs.
“Membership in hospital systems is not associated with lower operating costs,” according to a March article in the journal, Medical Care Research and Review.. “The one exception is the slight deterioration in hospital costs observed among hospitals belonging to larger and national systems.”
The Robert Wood Johnson Foundation article called the price increases “dramatic, often exceeding 20 percent. … when hospitals merge in already concentrated markets. Ultimately, increases in health care costs (which are generally paid directly by insurers or self-insured employers) are passed on to health care consumers in the form of higher premiums, lower benefits and lower wages.”
The authors of the Health Affairs article saw a more modest price increase of about 8 percent, although their research is older. Merged hospitals saw a nearly 8 percent price increase for managed care patients.
David Knowlton, president and CEO of the New Jersey Health Care Quality Institute, a consumer advocacy and research group, said knowing the hospital executives involved, he expects the merged hospital system will find economies of scale. He also said he hoped that any duplicative senior executive positions could be trimmed.
Those discussions have not yet taken place. “In the merger of Barnabas Health and Robert Wood Johnson Health System, it is not our intent to eliminate jobs, although any merger involves realizing efficiencies,” Ostrowky said.
Agnew said In states like Massachusetts that have already lived through their merger phase, large hospital networks and insurance carriers have less of an adversarial relationship out of necessity. They have worked together to control costs in expensive areas such as cardiology, orthopedics and oncology, he said.
“With the advent of Affordable Care Act and more competition in the marketplace, they are saying we can do more together than apart,” he said. An insurance carrier will say, these costs are so high, how can we get them under control? If we can do that together, we can share those savings.”
What does it means for the competition?
Competition for physicians is already intense. RWJ Barnabas will be the largest New Jersey-based hospital chain and will therefore have the largest bargaining power with insurance carriers and employers. All but five of New Jersey’s 72 acute-care hospitals are part of a larger network, or in the process of joining a network via merger, acquisition or strategic partnership, according to the N.J. Hospital Association.
Ronald C. Rak, president and CEO of Saint Peter’s Healthcare System in New Brunswick, the longtime competitor and occasional partner of Robert Wood Johnson University Hospital, called the announcement “welcome news.”
“This development brings an opportunity to our two New Brunswick hospitals to build upon their modest collaborative community efforts of past and present, and to explore in this ever-changing healthcare environment how to best serve the people of New Jersey,” Rak said.
What does it means for employees?
Nothing yet. There are no plans to cut jobs at this early phase, Ostrowsky and Jones said.
The workforce includes 30,000 employees, 9,000 physicians and 1,000 interns and residents.
Barnabas operates Clara Maass Medical Center in Belleville, Community Medical Center in Toms River, Jersey City Medical Center, Monmouth Medical Centers in Long Branch and Lakewood, Newark Beth Israel Medical Center in Newark, Saint Barnabas Medical Center in Livingston and two children’s hospitals. Barnabas also has a consulting agreement with University Hospital in Newark.
Robert Wood Johnson operates hospitals in Somerville, Hamilton, Rahway, and its flagship hospital in New Brunswick also serves as the clinical campus of the Robert Wood Johnson Medical School, and home to The Cancer Institute of New Jersey and two children’s hospitals.
Date: July 18, 2015