Can Baylor-Memorial Hermann merger cut healthcare costs? 5 thoughts

On Oct. 1, Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann Health System signed a letter of intent to merge. With the combined $14 billion system's 68 hospitals slated to account for 15 percent of total hospitals in Texas, some are questioning how the merger would affect healthcare costs, according to The Dallas Morning News.

Here are five highlights from the analysis:

1. Expenses, such as pricey prescription drugs, can overshadow savings from hospital mergers, Baylor Scott & White CEO Jim Hinton said. The identification and transfer of best practices between merging entities represents the biggest potential benefit, according to the report. This may include making surgeries more efficient or reducing intensive care stays, which can translate to lower costs.

2. Five years before its proposed deal with Memorial Hermann, the Baylor and Scott & White health systems merged. As an entity, Baylor Scott & White has surpassed its estimated cost savings, according to Mr. Hinton, even as the systems were combining. Baylor Scott & White saved nearly $740 million in the past five years. In 2017, Moody's Investors Service praised the health system for "demonstrating [an] ability to execute large integration initiatives."

3. However, a Health Affairs study published in September and cited by The Dallas Morning News found a wave of big hospital consolidations in other states may not have led to lower costs. For instance, in 2016, the average adjusted price per admission among California's largest health systems was $7,000 more than at all of the state's other hospitals.  

"Policy makers across the country can and should learn from California," the study said. "The wave of hospital consolidation happened earlier in California, but other states are catching up."

4. In addition, employers are increasingly putting pressure on health systems to cut costs. The publication asked Mr. Hinton whether an employer initiative like Amazon-Berkshire Hathaway-JPMorgan Chase is a threat to a combined Baylor-Memorial Hermann or a potential collaborator. Mr. Hinton, who would be the lead at Baylor-Memorial Hermann, said: "Both. If we don't understand the frustration among businesses and don't do anything about it, this is a big threat. But if we begin to disrupt ourselves, maybe we can become a partner in some way with the disruptors."

5. Pending regulatory approval, Baylor Scott & White and Memorial Hermann expect their deal to close in summer 2019.

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