What it means for Lehigh Valley health care

Tuesday’s announcement that Lehigh Valley Health Network and Philadelphia-based Jefferson Health planned to merge has the potential to shake up health care throughout the region.

Should the merger go through, it would result in the second-largest health network in the state, after UPMC in western Pennsylvania. It would include a national research university, an expanded not-for-profit health plan, 30 hospitals, more than 700 outpatient sites, and more than 62,000 employed faculty, clinicians and staff across eastern Pennsylvania and southern New Jersey. Annual revenue would be estimated to be $12 billion to $14 billion.

But what impact will the merger really have? To find out, The Morning Call spoke with Chad Meyerhoefer, a Lehigh University professor of economics and expert on the business of health care.

Meyerhoefer said that the merger is likely to go through without major opposition from regulators because LVHN and Jefferson don’t compete within the same geographic areas of the health care market.

Should everything go smoothly LVHN and Jefferson expect the getting regulatory approvals to not take more than a year.

But that doesn’t mean changes will be seen immediately, Meyerhoefer said.

“These health systems are huge. It’s like steering an aircraft carrier; if you want to change the direction it has to happen slowly,” he said. “It’ll take a little while for this merger to be approved and then it’ll take much more time for those health systems to really start to integrate across two units.”

Insurance is the realm of health care where the merger could shake things up the most for the Lehigh Valley.

LVHN and Jefferson both touted the benefits of integrating Jefferson Health Plans, Jefferson’s noncommercial insurance marketplace, which offers Medicaid, Medicare Advantage, Affordable Care Act Marketplace and CHIP plans, into the existing health care operations of LVHN. The CEOs of both networks said the program will improve care for underserved populations and reduce the cost of care.

There is no equivalent or comparable program to Jefferson Health Plans in the Lehigh Valley, though it’s not the only one of its kind in Pennsylvania. It’s a well-established program, existing for more than 30 years as Health Partners Plans before Jefferson took sole ownership of it in November 2021. More than 340,000 people are covered under Jefferson Health Plans, with the majority on Medicaid.

Meyerhoefer said hospitals don’t profit from Medicaid or Medicare. With most of the country’s large baby boomer population transitioning or having already transitioned to Medicare, and with many having serious health care needs and chronic conditions, hospitals actually stand to lose money on care.

But Meyerhoefer said hospitals can offset those losses by becoming very efficient at servicing, and by treating a large volume of Medicaid and Medicare patients.

“A large volume on a low payment rate, that’s better for revenue if you can become very efficient at providing services to those patients, and it’s good for the patients too, because they get better access,” Meyerhoefer said.

He said patients on Medicaid as well as those who are underinsured and underserved in particular will stand to benefit a good deal by getting plans from Jefferson Health Plans, in terms of the continuum of care and better access to outpatient care services. In particular, for those on Medicaid, it can be difficult to find outpatient providers that accept their insurance. But if the company that provides the Medicaid insurance also owns the outpatient care providers, this problem doesn’t exist.

“They can leverage their size and their administrative sophistication to start offering these plans to Medicaid patients and plans in the health insurance exchanges to provide comprehensive insurance to patients that are often on and off insurance and who have a more limited ability to afford care,” Meyerhoefer said.

“That reduces uncompensated care, that improves continuity of care. And if they’re large enough, they can take advantage of the volume of patients that they’re seeing to maintain revenue.”

Those with private plans could end up paying more, though. Meyerhoefer said consolidation decreases competition and larger networks can put more pressure on insurance companies for better compensation and rates, which ultimately leads to higher premiums for private insurance plans.

That’s born out by some studies, including a Kaiser Family Foundation report that found that some mergers, especially those that bring together health systems operating in different markets, have led to price increases ranging from 6 percent to 17 percent.

The Federal Trade Commission has challenged hospital mergers based on price increases, finding that they reduce competition and can lead to higher prices.

The union that represents nurses throughout the region — including those at LVH-Pocono — also expressed concerns.

“Research shows that mergers can drive up costs of health care for patients as much as 12% without a corresponding rise in the level of patient care,” Matt Yarnell, president of SEIU Healthcare PA, said in an email. “In addition, highly concentrated health care markets can lead to lower pay and staffing for front-line workers. … We want to make sure that patients and front-line workers stay the center of this conversation. While the growing trend of consolidation and acquisition raises many questions and concerns, we look forward to working with Lehigh Valley and Jefferson University if this transaction goes through.”

In an interview Tuesday, LVHN CEO Dr. Brian Nester said the merger would make better care more available, ultimately lowering the cost of care for patients.

“If you give better care you make it more available, [if] you get patients engaged they’ll have better outcomes and won’t require hospital service or unnecessary therapies — that will ultimately lower the cost of care,” he said.

An LVHN spokesperson added that it was too early in the process to comment on a “hypothetical” based on other states and regions.

A lot must be decided before any merger occurs. A final agreement still is being negotiated, and the deal will require state approval. Existing hospital leadership will remain in place.

Unknown is how the merger would impact staffing, particularly administrative, at the health networks, and what if any rebranding will occur.

The merger, however, is sure to change the dimensions of the existing rivalry between St. Luke’s University Health Network and LVHN, although Meyerhoefer said in the short term he doesn’t expect much will change because there will still be two entities competing in the region.

After the announcement, Rick Anderson, president and CEO of St. Luke’s, issued a statement saying the network has “always respected” LVHN as a “vibrant local competitor,” going on to say “St. Luke’s will continue to focus on continuing to be the lowest cost provider with the highest quality care.”

Meyerhoefer said integrating Jefferson Health Plans into LVHN’s operations would give the new health network power over Medicaid and Medicare dollars in and around the Lehigh Valley.

But Meyerhoefer said where he sees the most change in the short term is branding and public perception. He said St. Luke’s has made the Temple St. Luke’s School of Medicine a major part of its branding in recent years as a way to differentiate from LVHN, which has a medical school program with the University of Southern Florida. But Thomas Jefferson University is owned by Jefferson, and Sidney Kimmel Medical College is well respected.

“I’m sure there’ll be some branding that does promote those academic credentials and shift perceptions among consumers,” Meyerhoefer said.

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