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Hospitals’ bid to absorb physician practices raises cost concerns

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The Pacific Coast Business Times looks at the pros and cons as regulators grapple with the growing push by some hospitals to absorb local physician groups.

One such situation is with the proposed merger of Cottage Health, operator of the only hospitals in South Santa Barbara County and the Santa Ynez Valley, Calif., with Sansum Clinic, the largest physician practice in the area. As the paper notes, the proposal “raises questions about cost, quality and access to care.”

Anecdotal evidence suggests some greater efficiency with “vertical integration,” yet it’s hard to pin down how prices may be affected.

“While Cottage and Sansum officials have made the case that a combined entity will be leaner and more cost-effective, critics worry that the cost of care will increase and access to a wider range of insurers will be curbed,” the paper said.

And consider a merger in Idaho between the six-hospital St. Luke’s Health System and its physicians in Boise with the 44-physician Saltzer Medical Group, in Nampa, Idaho’s second-largest city.

The Federal Trade Commission filed a complaint that asserted that the combined entity  would have about a 60 percent market share of primary-care physicians in Nampa. U.S. District Judge Lynn Winmill ended up ordering St. Luke’s to divest Saltzer Medical Group.

St. Luke’s had argued that the acquisition would create a more integrated healthcare system.  But the judge said “there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs.”

“The combination of St. Luke’s and Saltzer would have given the merged hospital system the market power to demand higher rates for health care services, ultimately leading to higher costs for both employers and consumers,” the then FTC Chairwoman Edith Ramirez said in January 2014.

To read the article on vertical integration, please hit this link.

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