Hartford Business Journal

14 Hartford Business Journal • June 17, 2019 • www.HartfordBusiness.com By Natalie Missakian Special to the Hartford Business Journal W hen state regulators approved Connecti- cut's two most recent hospital mergers and acquisitions, both deals came with major strings attached. As part of the merger between West- ern Connecticut Health Network and New York's Health Quest Systems (now called Nuvance Health) and Bridgeport Hospital's $66 million acquisition of Milford Hospital, the newly combined organizations agreed to healthcare cost price caps tied to the Consumer Price Index — a first for Connecticut and one of the most stringent cost controls ever placed on hospital combinations here. The state's Office of Health Strategy (OHS) said it imposed the caps amid growing concerns about the spiraling cost of health care. Nationally, the average American spent $10,739 on health care in 2017, according to the Center for Medicare and Medicaid Services, a number that is projected to grow by 5.5 percent annually over the next decade, higher than the rate of inflation. "High healthcare costs are a na- tional problem," OHS Executive Direc- tor Vicki Veltri said via email. "When people can't afford health care, pre- scriptions or preventative care, they are more likely to let conditions go untreated, which creates even higher costs as more serious illness occurs." No hospital has publicly complained about the relatively modest caps. But the limitations, modeled in part after reforms in Massachusetts and other states, could be a powerful lever for Con- necticut regulators in their attempt to suppress the rising cost of health care, particularly if lawmakers decide to build on that authority in the years ahead. The fledgling OHS, created by the legislature in 2017, currently has some- what limited cost-control powers. It can only apply the cost caps through the state's "certificate of need" process, which regulates major M&A ac- tivity between hospitals and large physi- cian groups, but it can't directly apply the caps to all providers and payers across the state's healthcare landscape. In the recent legislative session, OHS tried, ultimately unsuccessfully, to expand its cost-review powers across a broader swath of the market, and on a more permanent basis. Legislation that would have, among other things, required all healthcare providers to meet yearly cost bench- marks, or face public scrutiny died in the final hours of the legislative session. The benchmarks were part of a con- tentious bill that initially sought to create a state-subsidized health plan for small businesses and individuals, known as the "Connecticut Op- tion," but it was squashed follow- ing pushback from Cigna and other insurers. States like Mas- sachusetts and Rhode Island have taken cost caps a step further, im- plementing state- wide price targets for all healthcare providers. Connecticut isn't there yet, but with the recent caps, regulators here are flexing what muscle they do have, with an eye to- ward moving in that direction. David Blumenthal, president and CEO of the Commonwealth Fund, a health- care policy think tank and foundation, views cost caps as a partial step toward greater price regulation. "States are reluctant to take on the direct regulation of prices because they get a lot of pushback from the industry and it seems like a state intrusion in the marketplace," Blumenthal said. While the healthcare system often talks about cost-lowering efforts, big mergers and acquisitions offer state regulators "a chance to bargain and use their authority over nonprofits to extract concessions," he added. "And they can do that without taking on the general issue of price regulation." Massachusetts Attorney General Maura Healey last November imposed a seven-year price cap as a condition for approving the merger between Beth Israel Deaconess Medical Center and Lahey Health System amid reports that the deal could result in price hikes as high as $231 million a year. The cap bans price increases above the Bay State's own healthcare cost growth bench- mark, which was enacted in 2012 and cur- rently stands at 3.1 percent. Under the new Connecticut cap, affected hospi- tals cannot raise prices higher than the change in the Northeast region's Consumer Price Index from the preceding year plus 1 percent, or by 3 percent, which- ever is lower. "I think this is an interesting window into what the future's going to hold [for hospital mergers]," said Zack Cooper, a Yale health economist who has studied how hospital mergers impact prices. Hospitals often say consolidation will bring down prices through better effi- ciency and coordi- nation of services, but Cooper said there's an emerg- ing consensus among academics that prices tend to go up when hospi- tals merge, as the systems can use their size to lever- age higher prices. A New York Times analysis last fall of the 25 metropolitan areas with the highest rates of consolidation between 2010 and 2013 found that the average price of a hospital stay rose between 11 and 54 percent in the years after a merger. The prices of a hospital admission in the New Haven-Milford region jumped by 25 percent between 2012 and 2014 as Yale New Haven Health expanded, compared to 7 percent elsewhere in the Controlling Costs New CT cost caps could chip away at rising healthcare spending Steven Rosenberg, CFO, Nuvance Health Dr. David Charash (right), medical director of Danbury Hospital's wound-care center, looks on as nurses treat a patient. Danbury, now part of Nuvance Health, is one of five Connecticut hospitals subject to a new state-imposed cost cap. PHOTO | CONTRIBUTED FOCUS "It's really hard to unscramble eggs. Once you allow hospitals to merge, you don't have a lot of recourse if those merged parties are able to extract higher prices. What this [cap] does is put into place a safety net." Zack Cooper , Health Economist, Yale

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