The southeastern Wisconsin health care market is on the brink of an era of significant consolidation. Advanced Healthcare Inc., a physicians group, is in talks to partner with Aurora Health Care.
In April, Froedtert Memorial Lutheran Hospital and Community Health signed a letter of intent to partner with Columbia-St. Mary’s Hospital.
Earlier this year, Wheaton Franciscan Healthcare purchased full ownership of the Wisconsin Heart Hospital.
“In general, consolidation has been happening all over the country,” said Ralph Andreano, professor of economics, emeritus, at the University of Wisconsin. “Everybody’s trying to get an edge. The demand for care is strong nationwide.”
Generally, the institutions that are acquired by larger providers have weaker physician referral networks, Andreano said. Stronger referral networks tend to fill beds more quickly because physicians recommend their patients to the hospital networks to which they belong.
Health care consolidations tend to drive up prices in a market, Andreano said.
“It certainly will result in higher prices. It usually does,” he said. “There probably will be some improvement in quality. It reduces choices somewhat. It will probably hit some physician groups hard because they may have had existing referral patterns that can be changed or upset because of consolidations.”
The higher health care prices that patients in the Milwaukee area pay are partially the result of consolidations in the past 15 to 20 years, said Richard Blomquist, president of Blomquist Benefits LLC and past president of the Independent Business Association of Wisconsin.
“What we’ve seen all along that track is an increase in health care costs,” he said. “It’s interesting that the evolution of integration has closely paralleled increased costs. The consolidation of the market over the past 10 to 15 years has resulted in almost monopolistic situations. Those entities wield a great deal of clout when it comes to dealing with contracted relationships with PPOs and HMOs.”
Consolidated physician groups are able to command rates 30 percent higher than others, Blomquist said, while some consolidated hospital groups are able to get rates 200 to 300 percent higher.
In some case, consolidation in health care results in more hospital beds and expansion, Blomquist said. But that expansion doesn’t necessarily result in lowered health care costs.
“There is one item on the table that Aurora would build a hospital for Advanced Healthcare,” Blomquist said. “It would create a redundant hospital in northern Milwaukee and Ozaukee (counties), and it would increase prices in that area by about 20 percent.”
Rates would increase because existing health care facilities in that area have occupancy rates between 50 and 60 percent, and equipment such as MRIs units frequently sit idle, Blomquist said.
“They’re not going to double the number of MRIs being done (in that area), so you could conceivably double the cost of the MRI,” he said. “It’s the same argument as building an Aurora hospital in western Waukesha County.”
Consolidation can also reduce beds in other cases, such as the consolidation of Columbia and St. Mary’s hospitals on Milwaukee’s east side. The hospital group is building a new facility on the St. Mary’s campus, which will have fewer beds than the two hospitals but a larger use of state-of-the-art technology, Blomquist said.
“What they’re doing is improving their infrastructure instead of expanding and dominating,” he said. “Economies of that, I have an easier time accepting than redundant (facilities).”
Dr. George Lang, a physician with Westgate Medical Group, a physicians group that was acquired by Columbia-St. Mary’s in November 2005, believes that consolidation had largely positive effects.
“With respect to Westgate, it provided us with the infrastructure we lacked,” he said. “I think because of that, it’s improved access (to health care) in the city. We’ve been able to track patients through the marketing efforts by Columbia-St. Mary’s.”
Consolidations in health care aren’t all bad, Andreano said.
“You can get some inefficient hospitals off the books,” he said. “The hope is that the merged (institution) will be more efficient than the former two. It’s a painful process that affects a lot of people. And it often doesn’t go all that efficiently.”
Consolidated institutions can also have some marginal improvements in quality, Andreano said.
Lang said he isn’t sure how far consolidation in the health care market in southeastern Wisconsin could go.
“I think that if there’s no competition, that’s probably not a good thing,” he said.
Andreano said the difficulties of integrating systems and other boundaries will play significant roles in limiting how far consolidation will reach.
“It has its limitations because of different philosophies and religious orders (different groups have),” he said. “It’s difficult to persuade groups like that to merge. But in general, where there’s a good fit between two or more institutions, there are economies of scale and things like that.”
