BJC, St. Luke’s hospital merger may value Missourians

ST. LOUIS — The deliberate merger of BJC HealthCare and Kansas Metropolis-based Saint Luke’s Well being System could possibly be the largest deal for the St. Louis area’s largest employer and its 30,000 employees for the reason that 1993 mixture of Barnes-Jewish Inc. and Christian Well being Companies created the BJC system.

And the tie-up may reverberate effectively past BJC’s $3.3 billion payroll to the paychecks of employees throughout the state.

A evaluation of the hospitals’ financials point out the merger of the 2 tax-exempt well being care chains would create a transparent market chief in Missouri. BJC is the most important St. Louis well being system, with 40% of the market’s affected person discharges and $6.3 billion in complete income. Saint Luke’s is the No. 2 Kansas Metropolis system, with almost 20% market share within the state’s second-largest metropolitan space.

“That provides them big leverage when it comes to negotiating energy with the insurers,” Ryan Barker, an unbiased well being care coverage marketing consultant based mostly in St. Louis and former director of the Missouri Basis for Well being, mentioned shortly after the deal was introduced on Could 31. “That’s what I at all times fear about with consolidation is the impression on pricing.”

Well being care specialists say the deal, introduced Could 31 and anticipated to shut later this yr, is probably going a play to present the mixed system larger leverage in its negotiations with employers and insurers in Missouri. These well being care payers could have extra incentive to comply with hospital value calls for so as to maintain each the St. Louis and Kansas Metropolis programs of their networks.

“It continues to be the case that the hospitals are attempting to achieve the higher hand on the insurers,” mentioned John Romleya professor on the College of Southern California who research well being coverage and economics. “That was true 10 years in the past. That’s true as we speak.”

And well being economists say there’s clear proof that hospital mergers result in increased costs, which trickle right down to shoppers.

“Insurers going through increased supplier costs improve their premiums to employers,” Martin Gaynora number one well being economist at Carnegie Mellon College, testified in 2021 throughout a U.S. Senate committee listening to. “Employers then move these elevated premiums on to their employees, both within the type of decrease wages (or smaller wage will increase) or decreased advantages.”

Antitrust regulators have largely centered on hospital mergers or acquisitions inside metropolitan areas. The BJC and Saint Luke’s mixture is the most recent in a pattern of well being programs reaching past their core markets for brand new belongings.

“The truth that these are cross-market mergers I feel will assist them in relation to the scrutiny that will likely be coming their method,” Romley mentioned.

However, whereas restricted, different analysis is starting to level to the identical upward value impacts from cross-market mergers. A 2019 paper published in the Rand Journal of Economics authored by main well being economists discovered that cross-market mergers inside a single state can result in hospital service value will increase of seven% to 9%.

Tim Greaneya professor at College of California Regulation, San Francisco, who research antitrust points in well being care, mentioned the thought is that if the 2, merging programs have a standard insurer, the hospital programs find yourself with extra leverage in negotiations, as a result of the insurer might not have the ability to afford shedding one of many system’s main hospitals from its community.

There have been a number of instances based mostly on this “cross-market concept,” Greaney mentioned, nevertheless it hasn’t been extensively litigated. And antitrust regulators’ capacity to show value impacts in any particular case entails “simply tons of investigation and fact-finding.”

The final word impression of the merger “sort of is dependent upon what the competitors does” mentioned Louise Probst, government director of the St. Louis Area Business Health Coalitionwhich represents most of the space’s largest employers in negotiations with well being care suppliers. Different competing hospitals may see the necessity to hyperlink up with bigger programs in response.

“If it goes unchecked we’re gonna have a handful of enormous well being programs that ship care all throughout the US,” Probst mentioned.

Whereas the literature doesn’t point out a lot if any shopper cost-savings from mergers, Probst mentioned the St. Louis area’s hospitals have not less than begun to speak about value inflation with employers. New federal guidelines are lastly requiring hospitals to publish service costs in an try to shed some gentle an opaque market, and Probst mentioned St. Louis hospitals this yr for the primary time agreed to voluntary cost increase targets of 5% in 2023.

It’s a primary step, she mentioned. Nevertheless it’s one that will be a lot tougher if senior management lived in Minneapolis, Chicago or Boston.

“The silver lining is it was two in-state well being programs and never out-of-state,” Probst mentioned. “We are able to nonetheless get in a room with them. They nonetheless reside in our group.”

The hospitals aren’t saying something past their press launch asserting the merger. The announcement mentioned each programs will keep their distinct manufacturers and function from twin headquarters in every market. Richard Liekweg, president and CEO of BJC, will function CEO of the built-in well being system, and the preliminary board chair of the built-in system will come from Saint Luke’s.

BJC and Saint Luke’s each declined to remark concerning the deal or the drivers behind it. Requested about tutorial consensus that hospital mergers elevate costs, a BJC spokeswoman pointed to a statement from the American Hospital Association given to the U.S. Senate’s Finance Committee earlier this month.

In it, the commerce group argued that mergers assist hospitals handle “extraordinary monetary pressures” lately, and that they’ll scale back prices and improve high quality. Testimony from the group to Congress in 2021 argued the nation’s few massive health insurance companies pocket the savings the hospitals manage to wring from mergers.

Monetary reviews from BJC and Saint Luke’s point out they, like different hospitals, have certainly taken a success to their income. (Each are nonprofit organizations, however they, like different nonprofit hospital programs, sometimes absorb thousands and thousands of {dollars} extra in income than they spend offering care and pay their executives multimillion-dollar profit packages).

After lacking out on profitable surgical procedures sufferers deferred through the pandemic, the well being programs emerged from COVID-19 to the fast-rising wages and provide prices of an inflationary market.

“It’s been a tough couple of years,” Barker, the native well being marketing consultant, mentioned. “The hospitals have been within the purple they usually’re in search of something to form of convey them up when it comes to income and efficiencies.”

At BJC, whereas working revenues elevated by $293 million in 2022, it barely was in a position to sustain with rising bills and reported an working revenue of simply $25 million on the yr in comparison with $153 million in 2021. After greater than $100 million in funding losses and write-downs of different belongings, it reported a complete lack of $170 million final yr, in comparison with a acquire of $779 million in 2021.

Nevertheless, its financials for the primary quarter of 2023 present it swinging again to profitability. Revenues jumped $239 million in comparison with the primary three months of 2022, whereas bills rose solely $133 million. Working revenue swung from a $46 million loss final yr to a $60 million acquire. Mixed with different revenue from investments, BJC reported $181 million in internet revenue final quarter, versus a $91 million loss in the identical interval in 2022.

Saint Luke’s additionally recorded a much less profitable yr, with working revenue falling from $147 million in 2021 to simply $7 million final yr. Mixed with funding losses and pension prices, it recorded a internet lack of $114 million in 2022, versus a acquire of $252 million final yr. Within the first quarter, working revenue fell under $1 million, in comparison with a $7 million acquire in the identical three months final yr. Funding beneficial properties pushed complete revenue for the quarter as much as $32 million in comparison with a $5 million loss final yr.

Saint Luke’s was traditionally the main hospital system within the Kansas Metropolis space. However about 25 years in the past, it started to face growing competitors from the College of Kansas Medical Heart, which has grow to be the most important hospital within the area, mentioned John Leifera Kansas Metropolis-based well being care marketing consultant and former senior vp of strategic planning and chief advertising and marketing officer at Saint Luke’s.

“Saint Luke’s was at all times king of the hill,” Leifer mentioned. “Then KU wakened, bought its act collectively and have become a particularly formidable competitor. And I feel Saint Luke’s wants one thing that begins to shift the momentum as soon as extra in its path as a preeminent supplier on this market.”

Saint Luke’s faces steep competitors with KU for most cancers care, Leifer mentioned, and BJC’s highly-rated most cancers therapy middle, Siteman, doesn’t have as massive of a foothold within the Kansas Metropolis market as different premier therapy choices reminiscent of these supplied by the Mayo Clinic in Rochester, Minnesota, and MD Anderson Most cancers Heart in Houston.

“Siteman’s model shouldn’t be as sturdy because it could possibly be within the Kansas Metropolis market,” Leifer mentioned.

The 2 programs have already been working collectively for over a decade in the BJC Collaborativefashioned in 2012, which facilitates value financial savings via group buying and likewise shares finest practices on care. Leifer mentioned the programs clearly noticed some profit in combining.

“They’ve had greater than 10 years to check this speculation,” Leifer mentioned. “It was a really lengthy engagement and now they’re getting married.”

Annika Merrilees of the Publish-Dispatch contributed to this report.