Can regulations prevent health care costs from rising if Lifespan, Care New England merge?

The state’s top insurance regulator outlines how the proposed deal could present significant risks resulting in higher health care costs — unless heavily regulated

In a newly published 25-page working paper by the state’s Office of the Health Insurance Commissioner, Commissioner Patrick Tigue outlined how the proposed deal, with affiliated partner Brown University, could present significant risks that could result in higher health care costs— unless heavily regulated.David Goldman/Associated Press

PROVIDENCE — The proposed merger between Lifespan Corporation and Care New England, Rhode Island’s two largest health care systems, would ultimately reshape the landscape for the industry and alter market conditions. Effects will likely be felt by consumers, health insurers, competing health care providers, and employees if the proposed merger is approved.

But to prevent negative effects on affordability and access to health care for Rhode Islanders, the state’s top insurance regulator is weighing in. In a newly published 25-page working paper by the state’s Office of the Health Insurance Commissioner, Commissioner Patrick Tigue outlined how the proposed deal, with affiliated partner Brown University, could present significant risks that could result in higher health care costs — unless heavily regulated.

Each year, the office receives requested rate increases from commercial insurers, which the office can either approve, reject, or modify. Similarly, Tigue said a process like the state’s regulations on insurance companies could be a beneficial regulatory step toward the looming hospital merger.

Tigue, who presented the report to a health advisory group Tuesday, said he will not take a position for or against the merger. The proposed merger, which has been filed with the state attorney general’s office, the state health department, and the federal trade commission, has not yet been deemed “complete” to begin the scrutiny.

Neither Tigue, nor his office, has authority to approve the detail, but he noted that the newly merged system would control 80 percent of the market share — most of the state’s health care landscape.

The working paper said that hospital consolidation has typically led to higher costs in the past without always improving care.

The paper, published Tuesday, is the the firstpublicly published examination of the deal, which was proposed nearly four months ago by Lifespan, Care New England, and Brown University. Leaders at the two hospital systems have largely been silent on the matter.

Tigue wrote about five potential regulatory ideas that would be designed to the hold the newly merged system accountable for “improving affordability and improving population health and health equity on a statewide scale.” His ideas included comprehensive price caps, quality incentive requirements, advanced value-based payment adoption, population health and health equity improvement requirements, and regulatory oversight and model sustainable funding.

“These are the minimum necessary in OHIC’s view, considering its statutory charge to promote affordability and improve quality and access,” wrote Tigue in the report. He said other regulatory “components” may be advised as well. “The proposed merger between CNE and Lifespan presents a host of risks and opportunities. However, it is OHIC’s position that the risks outlined in this paper are significant and should command careful attention by regulators and the public.”

The paper, which may be “lightly” updated in the future as new information about the merger is made public, was put together based on information about the effects of hospital mergers on prices, costs, and quality. Data was sourced from public information, according to the office, and the hospital systems were not involved. Leaders from the systems were not interviewed for the report.

Tigue outlined how the two systems already have some of the highest prices in the state.

“This may be concerning for at least two reasons. First, any increase in market power that may accrue to the merged entity could be exercised in an attempt to increase prices, whether that be prices for hospital, professional, or ancillary services,” said Tigue. “Antitrust regulators will need to assess the risk that the merger will create market power for the merged entity and weigh the likelihood that such market power could be exercised to increase prices, given existing constraints within the Rhode Island market.”

Tigue also said the diversion of patients from lower priced competitors to higher price systems, such as this newly merged system, could increase health care costs.

“Antitrust regulators should assess the risk of patient diversion or steering to higher price facilities as a consequence of the proposed merger,” wrote Tigue.

Tigue also mentioned how all of Lifespan and Care New England’s hospitals had received a 3- or 4-star rating from the Centers for Medicare and Medicaid Services for overall quality in 2021. This year, only one hospital in Rhode Island received a five-star rating: independently owned and operated South County Hospital in Wakefield, Rhode Island.

Regulators should conduct of deeper dive into hospital quality performance within mortality, safety of care, readmission, patient experience, and timely and effective care, Tigue suggested.

Lifespan and Care New England’s executives have argued that the proposed merger would mean local control. In years past, out-of-state health care and hospital systems have acquired hospitals in Rhode Island. Just recently, Los Angeles-based Prospect Medical Holdings, which owns Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence, threatened to to close both hospitals after a dispute on regulatory matters with Attorney General Peter Neronha.

At the time of the debacle, Senator Sheldon Whitehouse had tweeted, “Out-of-state investors holding a gun to Rhode Island’s head by threatening to shut down hospitals is exactly why out-of-state ownership is so dangerous and why CNE/Lifespan merger is so important.”

In a joint statement sent to the Globe, Lifespan spokeswoman Kathleen Hart and Care New England spokeswoman Raina Smith said the systems share the commissioner’s goal of improving access, affordability and quality of health care for all individuals, and they said they believe that building a comprehensive academic health system that leads in research, attracts the best clinicians, and provides high quality care in the state is in the best interest for patients, consumers, and the economy in Rhode Island.

“We remain committed to working with state and federal officials and community members throughout the merger process to gather broad stakeholder input and ensure that we are building an AHS that is inclusive and beneficial to all,” wrote Hart and Smith.

Tigue said that while significant progress has been made over the last decade to advance public interest objectives, he said significant work remains to drive improvements in health system performance “that Rhode Islanders deserve.”

“The proposed merger between CNE and Lifespan presents a host of risks and opportunities,” wrote Tigue. “If the consequence of a successful merger merely shifts competitive bargaining dynamics within the market, increasing prices without concomitant improvements in quality, then consumers should question the value that they are deriving from the merger.”