Will Hospital Merger Help Consumers?

Children’s Hospital of Wisconsin and Froedtert. File photo by Aalvarez89 / (CC BY-SA)

Will patients/consumers of Froedtert Health and ThedaCare be better off after the just announced merger of the two Wisconsin health systems?

Will Wisconsin Attorney General Josh Kaul exercise any of his authorized oversight of the merger for the benefit of consumers?

Will the Milwaukee region lose another corporate headquarters like what happened with the consolidation of Advocate Aurora Health and Atrium Health of Charlotte, North Carolina. That’s where the fifth biggest health system in the United States will be based.

Who comes out the best in these consolidations?

These all-important questions are never answered in the news releases about the pending mergers. And they certainly were not answered publicly in this latest episode in the “urge to merge” stampede across the country.

All the platitudes about streamlining, efficiencies, more innovation, transforming healthcare and commitment to communities are voiced in the official statements about the mergers. But those are abstractions. Both Froedtert Health and ThedaCare are big enough to achieve most economies of scale, so put me down as a skeptic on the concept that bigger is better for patients.

Let’s take these questions one at a time.

Hyperinflation (my term to cover 6% to 8% annual inflation of health costs) has continued for decades despite the merger mania, and it shows no signs of abating. Indeed, a researcher of the Rand Corporation, which did a major analysis of hospital performance across the country in 2022, scoffed and told me that consumer prices ALWAYS go up after a consolidation.

Rand found that Wisconsin already ranks fourth highest for health costs of the 50 states when using Medicare prices as a baseline. That study shows that family premiums rose 54% from 2009 to 2019, and their deductibles went up by 162%. Rand found that Wisconsin doctor fees are second highest in the country.

So what’s the main driver of the mergers? It’s that more market share can be used as leverage against the big health insurers for higher prices.

That pricing power shows in the numbers. The Kaiser Foundation tracked health costs for a family of four and reports that their costs were $22,463 in 2022. Ouch!

So who is kidding whom? These mergers are all about increasing market share and the muscle to raise prices.

As for government intervention to protect consumers from price gouging, it doesn’t exist in Wisconsin. Kaul has called no hearings over four recent major mergers and had has done no investigation as to the necessity of the consolidations. President Biden has urged the Federal Trade Commission to engage and it has put the brakes on a few mergers around the country, but none in Wisconsin. In contrast, Minnesota’s attorney general has launched a probe into the merger of the University of Minnesota Health with Sanford Health in the Dakotas.

Meanwhile, Gov. Tony Evers has not issued a peep about the harm to consumers from the consolidations. And it wasn’t an issue on either side of the political divide in the recent spring election. Don’t these pols recognize a compelling issue on behalf of families when they see one?

As anybody in the economic development world knows, corporate headquarters are a treasure. Lots of high-paying jobs reside at the corporate headquarters, and they leave when the combined center leaves. We need to fight to keep those headquarters based here.

After WWII President Eisenhower warned against the dominance of the “Military Industrial Complex” at 5% of the U.S economy. But the real threat to families’ prosperity in today’s world is another MIC – the “Medical Industrial Complex” that raises prices with impunity. The health care sector is pushing 20% of the U.S. economy.

There has been a push in Indiana to bring the prices of the big hospital corporations into line with national averages (defined as 260% of what Medicare pays). Self-insured employers in that state believe they would save more than $2 billion per year if that were to happen.

Nothing like that kind of pressure on the big providers has yet happened in Wisconsin, and the mergers will only make it less likely.

Every critic of the consolidations points to the gargantuan pay packages on both sides of the deals. Catherine Jacobson, Froedtert’s CEO, who is retiring in six months, will walk away with a nice retirement package.

On the other side of the deal, ThedaCare’s CEO Imran Andrabi, will become CEO and president of the combined system, and he will get a pay raise on the grounds that he is running a bigger organization.

The Froedtert system is far larger partner in this mashup — $3.3 billion in revenues to $1.2 billion in revenues at ThedaCare, so one would think that the yet-unnamed combination will be based in the Milwaukee area. But the headquarters of corporations often wind up where the CEO’s spouse lives.

Both of these systems have been recognized for advancements in the quality of care. Froedtert Health enjoys a close partnership with the Medical College of Wisconsin, where sterling research and development takes place — often in clinical trials at its main Froedtert Hospital.

ThedaCare once led the health industry in adopting lean disciplines inaugurated by Dr. Edwards Deming and deployed aggressively at the Neenah hospital.

If more doctor training and clinical research were expanded to the Fox Valley through the Medical College of Wisconsin alliance, and more lean disciplines were imparted to Froedtert, one of the most expensive hospitals in the state, there could be some wins for consumers in this pending combination.

As for health care prices, they almost certainly will be no post-merger deflationary pressure on the soaring inflation in eastern Wisconsin.

Just the opposite is a certainty.

John Torinus is the chairman of Serigraph Inc. and a former Milwaukee Sentinel business editor who blogs regularly at johntorinus.com.