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Reign of Giants 

Hospital systems and insurers have been merging to become bigger than ever — what does that mean for the little guy?

click to enlarge CHAD CROWE ILLUSTRATION
  • Chad Crowe illustration

Health care is big business. And the businesses in the health care business keep getting bigger.

Back in 2008, the small, struggling nonprofit that owned Deaconess and Valley hospitals was scooped up by the for-profit Community Health Systems, a big, Tennessee-based Fortune 500 conglomerate. Locally, even they were dwarfed by the behemoth of Providence Health & Services, the nonprofit that owns Sacred Heart Medical Center and Holy Family Hospital.

For years, it was a scramble between the two for market share. In 2010, CHS gobbled up even more of the local health care industry, buying the Rockwood network of clinics. Two years later, Providence took over Swedish Medical, the largest nonprofit health care system in Seattle.

This is not just happening locally. It's a nationwide trend, one that divides experts regarding the costs and benefits.

The advent of the Affordable Care Act — Obamacare — hasn't slowed down this sort of consolidation. If anything, it's sped it up.

Aaron Katz, who lectures about health services at the University of Washington, says that some of the consolidation is a consequence of the move toward electronic medical records, a trend that received an added push from Obamacare. It's the sort of thing that's very hard for a small regional clinic to do.

"Those things are expensive to buy, get providers up to speed and maintain," Katz says. "Medical practices are merging, as well as being purchased by larger hospital and health care organizations that provide resources to provide these electronic health records."

Similarly, larger health systems were more able to take advantage of the push toward "quality-based" health care, which requires tracking a complicated series of performance metrics.

The consolidation is also a natural consequence of an industry where the war is fought more in back-room negotiation sessions than in the marketplace. Patient decisions pale in comparison to the titanic battles between pharmaceutical companies, as well as insurance companies fighting to try to obtain the most profitable rates. A merger puts two weaker players in the body of a much more powerful one, making their bargaining position that much stronger.

A tiny rural clinic in Eastern Washington doesn't have much power when it comes to negotiating with a massive insurance company. But a giant like Providence? The company will listen.

That doesn't necessarily help out the little guy. One study from Northwestern University found that when Aetna scooped up Prudential's health insurance business in 1999, the company was able to bargain for stronger deals — but Prudential's insurance premiums still went up 7 percent as a result of the merger.

There are other consequences. Suzanne Allen, a family physician in Boise who teaches at the University of Washington's medical school, describes Boise's market as divided starkly between the St. Luke's hospital system and the St. Alphonsus Health System, part of the Trinity Health conglomerate. Increasingly, she's seen patients who are forced to rely only on one or the other.

"Now people are very specific: 'My insurance only allows me to see a provider at St. Al's, see a provider at St. Luke's,'" Allen says. Instead of having two options, in other words, consolidation left them with only one.

There are advantages to a big health care system, however.

"As new generations of physicians enter the field, some of them have different expectations about their careers than older physicians. Looking for more stability. More structure. More ability to take leave. Not so hectic and all-consuming," Katz says. "Larger organizations are more able to provide those support structures."

Of course, "stability" assumes that the large organization remains the same.

This year, with CHS struggling, the two hospitals and the Rockwood network were sold off yet again — this time to Tacoma's nonprofit MultiCare Health System. ♦

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