FTC case against merger gives insider look at Chicago health care

April 23--The Federal Trade Commission's effort to block the merger of two large Chicago-area hospital systems has provided a rare insider's look at the region's health care industry.

The picture reveals an industry in a state of flux and seemingly full of contradictions. Traditional lines between insurance companies and hospitals are being blurred. Competition is more intense than ever but collaboration is necessary. It's like a high school social where everyone is dancing with everyone but jealousy fills the gym.

Whether all the changes will result in lower costs and improved quality for consumers remains to be seen. Hospitals are merging, buying physician practices and opening walk-in clinics to increase the number of patients they treat and provide more cost-effective care. Yet, employer-sponsored health insurance premiums have gone up an average of 5 percent a year in the last decade and deductibles have increased faster than that. In the Affordable Care Act insurance marketplace in Illinois, premiums rose 20 to 30 percent last year.

Advocate Health Care and NorthShore University HealthSystem say the goal of their merger, opposed by the FTC, is to reduce consumer health care spending by introducing a new insurance policy whose premium would be 10 percent less than the cheapest existing health plan on the market.

But the commission says the deal would harm consumers by reducing hospital competition in the northern suburbs. The agency also criticizes the proposed Advocate-NorthShore health plan because consumers would have to give up choice of doctors and hospitals in exchange for discounted premiums.

At the end of the day, though, what patients care about is how well their doctors are taking care of them, as one health care quality expert testified during the seven-day court hearing that ended this week. A ruling isn't expected until June at the earliest.

Sometimes lost in the hospital merger frenzy is how the consolidation will improve the health of patients. Indeed, the FTC and the health systems spent more time in court examining hospital economics than hospital quality. Three economic experts testified versus two quality experts. Advocate's attorney spent only 15 minutes interviewing the hospital's own quality expert.

Health insurers have long talked about changing the way they pay for care, but there have been few tangible signs of just how enthusiastically hospitals and doctors embrace the alternatives. Insurers want to move away from the traditional approach of basing payments on the number of tests and procedures performed, so-called fee-for-service, and reward providers for improving care and lowering costs.

There are several payment arrangements with varying degrees of financial risk for hospitals and doctors. NorthShore still prefers fee-for-service insurance contracts, with more than 90 percent of its $2 billion in revenue coming from such arrangements.

Advocate takes more financial risk. It was one of the first health systems to form a so-called accountable care organization, or ACO, with Blue Cross and Blue Shield of Illinois where it shares some of the savings if it can manage patients' health for less money. The program, which has about 200,000 Blue Cross members, has been a success, according to Dr. Lee Sacks, Advocate's chief medical officer.

"Little did we dream that we actually were able to reduce year over year the total cost of care," Sacks testified. "And our costs in 2015 are below what they were for comparable patients back in 2010."

In 2012, Advocate also started participating in a shared-savings pact with Medicare, the government insurance program for the elderly. But its performance in the first year was average among all the ACOs and in the second year Advocate did worse than the national average, said Dr. Ashish Jha, director of the Harvard Global Health Institute, who testified as a quality expert for the FTC.

Despite some bumps, Advocate continues to take on more risk in its contracts with private insurers. According to Sacks, the system has shared-savings agreements with Aetna, Cigna and UnitedHealthcare. Advocate also has insurance contracts where it receives a fixed monthly fee per patient, rather than a payment per service provided. In such contracts, Advocate has financial risk for unexpected medical care, which is a big incentive to doctors to prevent people from becoming ill, Sacks said.

Despite differences in NorthShore's and Advocate's business models, NorthShore performs as well as Advocate on nationally recognized efficiency and quality measures published by Medicare, according to Jha.

"So I put all of this together and I say, I'm not seeing evidence that Advocate is better than NorthShore; that NorthShore needs Advocate to get better," Jha testified. "I look at this and I say, maybe they're comparable, maybe NorthShore is a little bit better."

As insurance payment models evolve, one of the biggest concerns for hospitals and doctors is when patients leave their health systems to receive care from competitors. It's hard to be accountable for a group of patients, such as Advocate's ACO with Blue Cross, when your physicians and hospitals are not providing the care. The industry uses a rather cringeworthy term to describe the phenomenon: "leakage."

Sacks said in the first year of the ACO with Blue Cross, 50 percent of the patients received care outside the Advocate network. A lot of the leakage was to academic medical centers, such as Northwestern Memorial Hospital and Rush University Medical Center, Sacks said, where care is more expensive.

Leakage is one of the factors driving mergers in the hospital industry. Another way to reduce leakage is through insurance products that have limited networks of doctors and hospitals or require patients to get referrals for specialists from their primary care doctors. The latter type of product is better known as a health maintenance organization.

HMOs have been around for decades but fell out of favor with consumers in the 1990s because they restricted choice. They are making a comeback in the Affordable Care Act exchanges, which provide coverage to individuals who shop for their own insurance, because they are cheaper than health plans that offer unlimited choice.

Advocate introduced an HMO with Blue Cross on the Illinois exchange last year and would like to offer it to Chicago-area employers. But insurers told the health system that such a plan would not be popular with employers because Advocate lacked a presence in northern suburbs along Lake Michigan, said Advocate CEO Jim Skogsbergh.

That's why the NorthShore transaction made a lot of sense, Skogsbergh added. NorthShore has four hospitals, in Evanston, Skokie, Glenview and Highland Park. Downers Grove-based Advocate is one of the largest health systems in Illinois, with 11 hospitals and a two-campus children's hospital. Its hospitals in Park Ridge and Libertyville compete with NorthShore.

Advocate also had discussed a merger with Northwestern Memorial HealthCare, Skogsbergh said. An agreement was not reached because Northwestern was not comfortable with Advocate's assumption of financial risk in its insurance contracts, Skogsbergh said.

One of Advocate's and NorthShore's biggest competitive concerns is Northwestern's growth.

Northwestern owns a hospital in Lake Forest and has several outpatient centers and physician offices in the northern suburbs, from Evanston to Libertyville. Northwestern uses the term "front doors" to describe the outpatient facilities where patients first come into the system. Those consumers are potential patients for Northwestern's hospitals.

Northwestern is spending about $400 million to replace the aging Lake Forest Hospital, which is in one of the wealthiest enclaves in the Chicago area. Rivals seem to think some of hospital's features are excessive. One of the lighter moments during the hearing came when one of NorthShore's attorneys displayed a rendering of the new hospital that featured waterfalls.

"How many community hospitals have waterfalls?" David Dahlquist asked James Dechene, Northwestern's general counsel.

Dechene's response: "I really don't know. I mean, we would call it a water feature. This is a pond that we needed to have to keep the fire (department) happy, and we tried to make it pretty."

asachdev@tribpub.com

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