Hedy Tung, Senior Photographer

As Yale-New Haven Hospital System prepares to defend their acquisition of three hospitals across northern and central Connecticut, health advocates are discussing key concerns that will factor into the state’s approval process — including the risk of increases in healthcare pricing and of the slashing of services.

YNHHS has acquired three new hospitals –– Waterbury Hospital, Rockville General Hospital and Manchester Memorial –– from Prospect Medical Holdings, a private equity firm. The system hopes to capture part of a regional population it has previously never accessed and tighten its competition with Hartford HealthCare and Trinity Health, two large systems that have traditionally locked in the state’s most enriched revenue. Currently, the population YNHH tends to service is less commercially insured, meaning more likely to be on Medicare and Medicaid, and have lower reimbursement rates for services.

“Consolidation of healthcare systems worries us,” said John Brady, AFT Connecticut Vice President. “Both because it decreases competition, which leads to increased costs for the residents, but also it decreases services … as hospitals take over several hospitals, they have a tendency to eliminate one service or another at some of their hospitals to consolidate them.”

Certificate of Need Process

AFT Connecticut is a statewide labor federation of more than 90 local unions. According to Vin Petrini, YNHHS Vice President, YNHHS will file for a Certificate of Need (CON) over the next couple weeks, beginning the process of acquiring state approval for this merger. 

In May, Connecticut passed laws that made key changes to the CON process, including the creation of a 16-person task force. Brady will sit on this taskforce on behalf of the labor federation, contributing to a recommendation to the state on conditions required for this merger. Brady described the CON process as a political game wherein hospital associations push back against regulations.

“We’re not necessarily opposed to [YNHHS] being the buyer, as long as certain conditions are guaranteed,” Brady said. “Including things like maintaining services, not having prices go up … if [YNHHS] has good intentions to do all these things then there shouldn’t be any pushback.”

Brady referenced Windham Hospital — part of Hartford HealthCare — whose move to shutter their labor and delivery services was met with backlash and scrutiny by community members. With many people in the Windham area lacking reliable transportation, the distance to another hospital’s labor and delivery unit was seen as a considerable barrier and risk. 

About 50 percent of labor and delivery services in the country are covered by Medicaid — likewise the program covers a high percentage of Windham Hospital’s patient population. Compared to private insurance, compensation is low, leaving little “business incentive” to keep the service at the hospital, Brady explained. Brady expressed a need to monitor YNHHS in cases of consolidation to ensure similar dissolution of services does not occur.

According to Petrini, YNHHS’ track record of mergers, including with Milford Hospital and the Hospital of Saint Raphael, reflects investment in additional clinical services.

CT’s recent set of laws defined “termination of services” to include the suspension of services for over 180 days, thereby closing a previous loophole in the requirement to maintain services. In the past, hospitals would “try to skirt” their CON conditions by claiming services were suspended when instead, they were effectively discontinued, Brady explained. 

The conditions on YNHHS’ 2016 acquisition of Lawrence + Memorial Hospital included five years of observation by an independent monitor to ensure adherence to a set maximum fee increase.

Brady also noted a need for increased enforcement ability by the Office of Health Strategy, which is in charge of monitoring actions taken by hospitals post-acquisition. Increased transparency and staffing for the Office of Health Strategy would assist in ensuring adherence to the set conditions of a hospital system’s CON.

CT Hospital Consolidation

According to Petrini, Prospect Holdings had put these hospitals up for sale –– YNHHS did not solicit them. YNHHS bid on these hospitals as an opportunity “to extend high quality service in those local communities,” Petrini emphasized.

“[This is an opportunity to] reinforce what we’ve done with other hospitals like Lawrence + Memorial and Milford and St. Raphael over the years to sustain jobs in those local communities, but most importantly, to provide access to high quality care and sustain that access and grow it over time,” Petrini said. “And they had multiple bidders on it too. We were selected.”

According to Howard Forman, professor of economics, management and public health and director of the MD/MBA program at Yale, hospital consolidation has been associated with driving healthcare prices up as it gives large health systems, including Yale Medical School, market power to act as monopoly-like entities. The less competition these systems have, the more ability they have to set a higher price in the marketplace. Forman added that in the current population of Yale-New Haven Health services, most of their revenue still does not come from the commercially insured so this market power may not “matter as much.” 

Brady called the competition between Hartford HealthCare and YNHHS an “arms race,” with CT being run by two “big dogs” and then a bunch of smaller ones. It is well-documented that while consolidation of healthcare can “probably decrease expenses,” this money does not necessarily flow back into the hospitals, Brady explained. 

Many CT health advocates echo Brady’s sentiments of concern over YNHHS’s continued hospital conglomeration as they believe this increases the system’s monopoly power.

“More hospitals that are independent from each other is better for the residents,” Brady said. “And I understand that that makes it difficult financially for small hospitals … [but] I think as a society, we have to make decisions about what we think is important and where we think the balance is.”

According to Ted Doolittle, healthcare advocate for the state, in cases where “financial realities” force independent hospitals to merge with a larger health system, it may be better to have two “behemoth health organizations” in close proximity to each other rather than one monopoly existing in “an entire area of the state.” Petrini argued that acquiring these hospitals would increase competition with Hartford HealthCare and Trinity Health in the northern tier of CT.

Forman added that for YNHHS, increased market power may not matter as much because there’s “so little commercial insurance” in their target population and most of their revenue comes from patients on Medicare and Medicaid. 

Medicare and Medicaid reimbursement

“One factor that does more to drive up healthcare costs, especially in Connecticut, is the under-reimbursement for government insurance programs,” Petrini said. “If you’re covered by Medicaid or Medicare … Medicaid pays us 40 cents on the dollar of our costs. And Medicare pays us 90 cents on the dollar of costs.”

Since YNHHS is a “safety net health system,” according to Petrini, two-thirds of its patients are insured by either Medicaid or Medicare. He concluded that the system uses the cost associated with the commercially insured patients to cover those deficits.

Doolittle explained that Medicare pricing is “not drawn out of thin air” and that the federal government sets these prices through an organization called the General Accounting Office, which is set up to be the “most independent arm of the U.S. government.”

According to Doolittle, “a lot of money” comes to hospitals from Medicaid and Medicare. He said that many economists have tried to find evidence that hospital profitability is tied to their fraction of Medicaid patients, but that this evidence is “very scant.”

“There is this argument that the prices have to go up because Medicaid and Medicare are underpaid,” Doolittle said. “There’s not a lot of academic support for that.”

Medicare prices are set by a commission run by the GAO called MedPAC, or Medicare Payment Advisory Commission, which annually parses through large amounts of cost data of every U.S. hospital to set Medicare hospital prices.

MedPAC is designed to independently opine on government programs. According to Doolittle, “high-priced areas get a little more than low-priced areas.” 

“Not every hospital can make money under Medicare,” Doolittle said. “It’s set so that a slightly more efficient than normal hospital can make a modest profit. Well, that leaves a lot of the hospitals that aren’t more efficient … Medicare is based on economic reality… and a capitalist reality.” 

YNHHS has more than 7,500 university and community physicians and advanced practitioners.