Published: April 2, 2013 Updated 7 hours ago
By David Bracken and Derek Quizon — firstname.lastname@example.org, email@example.com
SMITHFIELD — The Johnston County hospital system has become the latest community care provider to align itself with a much larger partner, selecting UNC Health Care to help it expand services and lower operating costs.
The decision by Johnston Health, which operates a hospital in Smithfield and an outpatient clinic in Clayton, represents a victory for UNC over its rival WakeMed, which was one of two other possible partners that Johnston had been considering. It is also another example of the type of hospital consolidation that some believe is driving up the cost of health care for patients and employers.
In announcing their choice on Monday, Johnston Health officials said UNC can help it adjust to changes in Medicare and Medicaid reimbursements that are being driven by the Affordable Care Act. UNC is also expected to bring more specialized services to the county, such as pediatric cardiology, with UNC doctors making trips to Johnston whenever possible.
“One of our main goals was to keep people in Johnston County so they wouldn’t have to make the drive,” said Chuck Elliott, Johnston Health’s CEO.
Although details of the partnership won’t be finalized until this summer, Johnston Health’s board of directors will retain majority control with UNC owning a percentage of the business.
In aligning themselves with larger partners, local hospitals such as Johnston Health are seeking to take advantage of the negotiating and purchasing power that UNC and other large health systems have with insurance companies and other service providers. They also hope to benefit by sharing expensive services such as electronic health records and billing software.
Johnston Health includes the 199-bed Johnston Medical Center-Smithfield (formerly Johnston Memorial Hospital) and Johnston Medical Center-Clayton, an outpatient center that opened in the fall of 2009. Johnston Health also operates specialty and primary care doctors’ practices in Clayton and Kenly.
Both Johnston Health and UNC officials said Monday that they expect those lower operating costs to be passed along to patients.
“UNC’s goal is not to be the biggest health care system in the state,” said David Strong, chief operating officer of system affiliations for UNC as well as president of Rex Healthcare. “… The desire is to lower costs and then pass those along to patients.”
Critics claim higher bills
But critics of the wave of hospital consolidation now occurring across the country say it has contributed to growing hospital bills and insurance premiums. To ease their burden, employers have shifted more of their health care costs to employees, in the form of higher deductibles and co-pays.
“Your prices are going to go up, very simply,” said Gerard Anderson, who heads the Johns Hopkins Center for Hospital Finance and Management. “Hospitals do this to some extent for improved quality of care … but mostly they do it simply because they can negotiate better with insurers.”
Johnston Health is entering into exclusive negotiations with UNC a year after hospital commissioners decided to pursue a partnership with a larger hospital. UNC was among five health care groups that submitted proposals to merge with Johnston Health, a taxpayer-owned hospital system.
Johnston Health narrowed its list of potential partners to three in October – UNC, WakeMed and Vidant Health – after eliminating Duke LifePoint and Quorum Health Resources.
By partnering with Johnston Health, UNC gets a much firmer foothold in one of the state’s fastest-growing counties. And Johnston Health was recently given approval by the state to build a 50-bed hospital on its Clayton campus, where it has medical offices and an emergency department.
Among the biggest beneficiaries of a UNC-Johnston Health partnership is likely to be Rex Healthcare in Raleigh, which is also owned by UNC. Such a relationship will help ensure a steady stream of heart and cancer patients to Rex.
Strong said Rex already treats a substantial number of patients from Johnston County and the hospital has a joint venture in radiation oncology with Johnston Memorial hospital in Smithfield.
“It allows us to develop that even further,” he said.
WakeMed, which launched an unsuccessful $750 million hostile takeover bid for Rex in 2011, also has a significant presence in Johnston County. Dale Armstrong, the hospital’s vice president of regional operations, said he doesn’t believe the partnership will result in a loss of patients to its rival.
Smaller hospitals challenged
“WakeMed has always had a really strong reputation in Johnston County,” he said, noting that the hospital expects to expand its services there. “ … We fully plan to continue serving Johnston County and its residents.”
But as UNC continues to expand its network and leverage its bargaining power, it will make it increasingly hard for other hospital systems to compete. Anderson said the challenge for smaller competitors is that they are no longer in a position to get the same deals as their rival.
“You don’t have the bargaining power with the large insurers to get the most favorable deal,” he said. “And they can exclude you from their networks if you’re not a major player in the market.”
Both Anderson and Strong do agree on one thing: that the wave of hospital consolidations is unlikely to slow down anytime soon.
“I think the pressures that health care is under now, you will continue to see consolidation,” Strong said. “I don’t think it’s going to stop.”