Will Palmetto Health merger with Greenville system increase health care costs?

Palmetto Health’s merger with the Greenville Health System likely won’t raise health care costs in South Carolina, analysts say. But your medical bills will probably increase for myriad other reasons.

The merger, announced June 15, would form the state’s largest hospital company, with 13 hospitals serving 1.2 million patients annually. The combined companies are expected to generate $3.9 billion in annual net revenue and become the largest private employer in South Carolina with more more than 28,000 health care workers and 2,800 physicians.

Despite the size of the merger in the Palmetto State, it might not be large enough to leverage more money from insurance companies and higher out-of-pocket payments from patients, said Robert Hartwig, co-director of the Center for Risk and Uncertainty Management at the University of South Carolina’s Darla Moore School of Business.

“I don’t think it will result in higher costs because there’s not a sufficient degree of consolidation” compared with the number of hospitals and health care systems operating in the state, he said. “But the squeeze is on.”

In a written response to The State on Friday, the company said of the potential for higher costs:

“One message that’s been loud and clear over the years is that patients and businesses will not stand for increased prices for health care. They are telling us that health care costs are too high today. They are looking for ways to reduce those costs, as we are through the Palmetto Health/Greenville Health System partnership.”

Anti-trust experts and the Federal Trade Commission are leery of large health care mergers because it limits competition and lends leverage to the hospital systems. In theory, that could lead to the systems strong-arming insurance companies into higher payments, causing a rise in rates.

“Monopolists get to charge high prices,” said Jay Levine, co-chair of the anti-trust group of the Washington, D.C.-based law firm Porter Wright. “The question is whether this causes a monopoly in any form.”

The concern is that along with a monopoly on the hospitals comes a monopoly on the services they provide.

For instance, the FTC on Thursday challenged the acquisition of Mid Dakota Clinic in North Dakota by that state’s Sanford Health hospital system. The agency alleged the acquisition would significantly reduce competition for adult primary care physician services, pediatric services, obstetrics and gynecology services and general surgery physician services in the greater Bismarck and Mandan metropolitan area, according to the FTC website.

The acquisition would give Sanford a 75 percent share of those services, the commission alleges.

FTC spokeswoman Elizabeth Lordan declined comment on whether the Palmetto Health merger would be scrutinized.

“The FTC does not comment on proposed mergers, and it does not confirm the existence of investigations/reviews of mergers,” she wrote in an email to The State.

However, FTC chairwoman Edith Ramirez last year said the commission would continue to take a “very active” look at health care, noting mergers and acquisitions have grown by 70 percent since 2010, according to the health care business website HealthLeaders.

Palmetto Health chief executive Chuck Beaman, in announcing the merger, said the company expects to be vetted by the FTC and has planned for the merger to take affect by Jan. 1, which would leave time for a review.

“We feel confident this should be approved; we don’t expect any issues,” Palmetto Health said in its statement. “We will be glad to respond to any questions from the Federal Trade Commission.”

The Palmetto Health System includes Palmetto Health Richland and Palmetto Health Baptist in Columbia and Palmetto Health Tuomey in Sumter. The Greenville Hospital System has facilities in Greenville, Oconee County, Laurens County, and Greer. The companies have co-owned Easley Baptist Hospital in Pickens County since 2009.

Nearly half of all South Carolinians will be within 15 minutes of the new health company’s physician practices, hospitals and other health care facilities, officials said.

Beamon, in announcing the merger, said all hospitals are struggling with “a lot of unknowns … including how we will be paid.” He pointed to the uncertainty over the federal health care law.

“We’re all still seeing escalating costs” in just about every area, including personnel, medicines and equipment.

Nationally, health care costs have risen more than 6 percent a year since 1993, according to the National Center for Health Statistics.

The Palmetto Health/Greenville Health System merger, like other consolidations, provides hospital companies with economies of scale and elimination of redundancies, as well as leverage with insurance companies, USC’s Hartwig said.

He compared the U.S. health system to a Rubik’s Cube of rising costs and expenses, from hospital maintenance to equipment to employees, and doubts any cost savings will occur because of the merger.

“That should drive down costs,” he said, “But it’s notoriously difficult to drive down costs.”

Hartwig noted the United States spends 18 percent of its Gross Domestic Product on health care, “and we are headed to 20 percent.”

“We are by far the most expensive among developed countries without any notable superior outcomes,” he said. “Obviously there are better ways to manage it.”

This story was originally published June 23, 2017 at 2:45 PM with the headline "Will Palmetto Health merger with Greenville system increase health care costs?."