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The Lifespan/Care New England Merger and Health Care in Rhode Island
May 7, 2008
N.S. Damle, MD, FACP

Approximately nine months ago Lifespan and Care New England announced an interest in merging their non profit health organizations. The merger would result in two thirds of acute care hospital beds in Rhode Island under the medical care of the merged organization with annual patient revenue of 1.6 billion dollars. The two entities claim, the merger has the potential to create a nationally recognized academic medical center (in conjunction with the Brown Medical School), provide economies of scale, improve the quality of health care, research, education and promote health information technology. The request has been reviewed by the Federal Trade Commission and must be approved by the Office of the Attorney General and the Department of Health in meeting the requirements of the Hospital Conversion Act.

The announcement of the proposed merger (no formal application has been submitted to date) has stirred significant debate in the medical community. The competitive health care market in Rhode Island has expressed concerns about the potential for a monopoly and unfettered negotiating leverage with the state's dominant health insurer (60% of the insured market is covered by Blue Cross Blue Shield of Rhode Island).

The discussions around this proposed merger showcase the economics behind the delivery of health care. In the United States, health care is a free market enterprise, subject to the usual forces of a free market system, which includes mergers to create financially stronger organizations, improve leverage in the open market and grow service lines that yield profit margins. A free market system by design also allows for weaker players and financially less profitable organizations, or even the elimination of certain competing health care systems due to lack of market share

A central issue in this debate is the choice of a regulated, full access, insured system or the present free market system, in which hospital systems, physicians and other health care providers compete for a fixed share of the health care dollar.

Some members of the Rhode Island health care community are calling for a statewide health plan. Such a plan envisions a distribution of healthcare based on population and geographic service needs. Such a plan would regulate health resources to match demand with attention to quality and cost. A priori this would regulate the above free market by restricting entrepreneurial ventures and even setting prices.

Short of a sea change in the structure and delivery of health care to create such a "regulated market"; there are certain concerns, intended and unintended consequences and suggestions that deserve consideration by regulatory agencies as they consider the Lifespan/Care New England merger:

  • The Federal Trade Commission may need to further study the competitive nature of this merger. At present these two organizations service primarily Rhode Island residents. Lifespan and Care New England draw 8 and 10 percent of their patients from neighboring Massachusetts and Connecticut respectively. Further, most privately insured patients in Rhode Island seek their care in Rhode Island (over 90%) and have restrictions/higher co-pays and deductibles for out of state and out of network care. One could argue that the competitive market is primarily limited to the state and not the larger New England area.
  • The formation of a monitoring board or commission to evaluate the impact of the merger on access and quality of care and service lines presently offered by non merged organizations and providers. Access may become an issue as destabilized organizations around the state become unsustainable and unable to provide care for their geographic service areas. Consumers may be affected if Lifespan/Care New England choose not to accept certain health insurance coverage or provide care for the underinsured and uninsured.
  • The Insurance Commissioner's office should monitor reimbursement discrepancies within the state between merged and non merged organizations and providers. Payment rates may differ based on quality and/or efficiency factors, but should not be based on market share and bargaining power.
  • The Department of Health needs to monitor the cost to consumers, since there are studies to show increased cost due to these types of mergers. Consumers of health care should be concerned about the potential for increased insurance premiums to cover higher negotiated rates for care. Non merged health organizations should be concerned about a loss in market share in certain service lines and lower reimbursements from health plans.
  • Some fraction of the financial gains from the merger should flow back to the health care system to maintain a strong primary care workforce, local community services and hospitals. There are numerous studies from several first world countries which demonstrate the importance of strong primary care in providing high quality medicine with cost efficiency.
  • There will need to be a transparent financial and service line structure for the new organization. Since this would be a non profit organization with its attendant tax advantages, accountability and distribution of the financial savings to the residents of Rhode Island should be a necessary condition.
  • The Department of Health or the State legislature should appoint a commission to develop a statewide plan to maximize the health care dollar through efficiency, quality, a strong primary care workforce and universal health coverage.
  • Recognize the importance of the primary care workforce and the community hospitals in supporting the proposed "national level academic medical center". Destabilizing these health care entities will also destabilize health care for Rhode Islanders.

The vision of this merger, with the creation of a first rate medical complex is laudable and has the potential to increase quality of care, decrease health care costs, bring new research opportunities to the state and increase employment in the health care industry. Without careful attention to the above factors there may be unintended consequences that actually fragment care, jeopardize access and result in increased costs to all Rhode Islanders.

N.S. Damle, MD, FACP
Governor, ACP Rhode Island Chapter

Page updated: 5/08/08