Medical costs will rise under UNC Health Care, Carolinas deal, Blue Cross warns

Blue Cross and Blue Shield, the state’s largest health insurer, has come out against a proposed health care partnership that would make North Carolina home to one of the largest hospital networks in the country.

Blue Cross said in a letter Wednesday that “a thorough review of independent research” consistently shows that health care consolidation drives up prices for consumers. Blue Cross sent the letter to the architects of the partnership: Bill Roper, CEO of UNC Health Care in Chapel Hill, and Gene Woods, CEO of Carolinas HealthCare System in Charlotte.

UNC and Carolinas are proposing a multistate combination that would employ 90,000 people and span more than 50 hospitals. The two partners announced their intentions in August and entered into confidential negotiations that are expected to conclude in the coming months.

“Blue Cross NC cannot support your proposed combination,” Blue Cross CEO Patrick Conway wrote. “However, we are open to continued dialogue if you can demonstrate how this combination will lower costs and improve quality over the long-term.”

Conway was not available Wednesday to discuss the stance taken by Blue Cross, which insures 3.8 million people and employs 5,000. But his letter signals that Blue Cross is not merely displeased but could actively oppose the deal. Opposition could take the form of submitting comments to regulators about the sprawling partnership’s economic implications for the state. Or it could mean alerting North Carolina lawmakers, who have remained noncommittal in public comments, on how the deal could affect their constituents.

Studies from the past decade have concluded that hospital mergers can raise patient costs by anywhere from 5 to 40 percent, depending on various factors, but in the absence of details about the partnership, Blue Cross did not indicate what changes North Carolina could expect from the deal. Studies have also concluded that mergers are pursued as a strategy to gain increased bargaining leverage with health insurers, ultimately forcing consumers to pay higher deductibles and higher insurance premiums.

UNC system president Margaret Spellings, who sits on the UNC Health Care board of directors and is involved in the negotiations, assured Wednesday that the UNC-Carolinas combination would be unlike other hospital mergers because the two systems operate in different parts of the state and don’t directly compete.

“We’re both in very competitive markets,” she said, “So this idea ... that prices go up when there’s monopoly-type players, that's just not the case in this deal.”

UNC Health Care said Blue Cross is misconstruing the intent of the partnership.

“We believe that Blue Cross Blue Shield of North Carolina has drawn premature and unfounded conclusions about our proposed partnership with Carolinas HealthCare System,” UNC said in a statement. “This partnership will position UNC Health Care even better to reduce costs, improve patient outcomes and increase access to high quality care – especially in rural North Carolina.”

Carolinas HealthCare said it does not expect Blue Cross to fight the partnership.

“While we are disappointed Blue Cross NC will not support our combination, we are pleased they are also not opposing our plan,” the company said in a statement. “Since announcing our Letter of Intent, teams at Carolinas HealthCare System and UNC Health Care have been working on the details of an agreement that would create a joint operating company dedicated to addressing the most pressing healthcare needs of our state.”

Conway’s letter marks another challenge to the united front presented by UNC and Carolinas. Last week, UNC Board of Governors member Tom Fetzer, who is a lobbyist for Blue Cross and for WakeMed Health & Hospitals, questioned the legality of the secret negotiations between UNC and Carolinas. As a health care lobbyist, Fetzer has declared a conflict of interest and has recused himself from any discussions at the Board of Governors about the proposed partnership.

The deal is also being reviewed by state Attorney General Josh Stein, and could be reviewed by the Federal Trade Commission, which in recent years has blocked several proposed hospital mergers. Roper and Woods have assured that the partnership would raise no anti-competitive concerns because UNC and Carolinas don’t overlap and their partnership would not reduce competition.

Spellings said all concerns are being addressed in the negotiations.

“Are we taking a good look at all of those issues? Absolutely,” she said. “And so will lots of other policymakers, including our friends in Washington.

“There are processes which include the FTC that are going to look at all these issues – price and service areas, and this and that.”

Roper and Woods vowed the UNC-Carolinas partnership would improve health care access in rural North Carolina, which has been plagued by a shortage of doctors, dentists and other services. Spellings echoed that point Wednesday, saying it will benefit the residents of the state.

“Are there questions about how everything is going to fit together and work, and transitions, and on and on? Absolutely,” she said. “And that’s what this process is all about. But is there a rationale for this partnership? There is, absolutely.”

UNC Health Care and Carolinas, in announcing the partnership last summer, said they must combine to remain competitive in an increasingly regionalized health care landscape. Roper and Woods said the partnership would not be a merger even though the new organization would be overseen by an independent board and would be renamed.

UNC’s Board of Governors, which oversees the state’s 17-campus system, has formed a special committee to review the UNC-Carolinas deal to make sure that state assets, including UNC’s medical school, are not put at risk. The special committee, which next meets Thursday in Chapel Hill, conducts its discussions in closed session.

Charlotte Observer reporter Deon Roberts contributed.

John Murawski: 919-829-8932, @johnmurawski