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Biggest hospital systems say expansion is critical as ACA changes landscape

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Revenue targets aren't as critical to Barnabas as geographic presence, Barry Ostrowsky says.
Revenue targets aren't as critical to Barnabas as geographic presence, Barry Ostrowsky says. - (AARON HOUSTON)

Two years ago, the Hackensack University Medical Center system had revenues of about $1.1 billion.

But that wasn't enough for CEO Robert Garrett, who saw an opportunity to cement its leadership role and a need to expand to survive changes in the 2010 health care reform law.

The hospital's board endorsed Garrett's plan to make Hackensack the centerpiece of a health care network that aims to hit the $3 billion mark in a couple of years.

It's a familiar story at big systems across New Jersey, such as Atlantic Health and Barnabas Health. Hospital executives say their increased scope and scale yields efficiencies that help them rein in costs.

Critics, meanwhile caution that hospital mergers historically have led to higher prices, as bigger systems use their market clout to demand better deals from insurers.

Health care leaders counter that they also use that market clout to demand lower prices from medical equipment suppliers and other vendors. And experts point to the successes of urban hospitals — like St. Francis Medical Center, in Trenton, one of 33 hospitals in the Catholic Health East network — that draw on the financial strength of their large-system parents.

This kind of growth is taking on added significance as the industry moves to new payment systems, where providers get a single "bundled" fee to provide all the clinical care a patient needs. Executives are betting that will favor large systems that serve many patients, and can have a measurable impact on population health.

The cost pressures on health care were accelerated by the Affordable Care Act, which requires most Americans to get health coverage, and also cut Medicare reimbursement to hospitals to help pay for the federal insurance subsidies for low-income individuals and families.

"As big as we were, we thought that $1.1 billion would not be strong enough to really command the type of leadership we had here in the state," Garrett said. "We needed to create a network to become bigger."

Hackensack, which adopted the Hackensack University Health Network name in 2011, is now up to $1.4 billion in revenues, including the flagship Hackensack University Medical Center; two community hospitals, in Westwood and Montclair; and numerous clinical alliances.

In challenging critics who say big health care means big insurance premiums, Garrett emphasized the efficient care his system can provide.

"If a patient needs a lower level of care, they should be seen at a community hospital," instead of Hackensack University Medical Center. Garrett said big systems can "purchase supplies and equipment at less cost, which hopefully will be passed on to consumers and insurers and businesses."

Ward Sanders, president of the insurer trade group New Jersey Association of Health Plans, isn't so sure.

"Provider and hospital consolidation are often sold as measures to increase efficiency, but ironically, they result in higher prices for employers and individuals, as any efficiencies are overshadowed by higher charges that larger health care systems can negotiate," Sanders said.

West Orange-based Barnabas Health runs six hospitals, and when it closes the acquisition of Jersey City Medical Center later this year, it will approach $3 billion in annual revenue.

According to CEO Barry Ostrowsky, experts say $3.5 billion to $4 billion is a sweet spot for efficiency.

Size, he said, "reflects an organization that can stretch overhead among more points of service and greater levels of care, and see more patients with greater efficiency."

He said a standalone community hospital needs many of the same functions as a large system, but without the revenue base to spread the cost.

"So how many compliance officers do you need?" he said. "You need one if you're a single hospital — and you may only need one if you're a five-hospital system."

But the better argument for scale, he said, is the movement away from the "fee-for-service" system, in which health care providers are paid for everything they do. The alternative — typified by the Medicare accountable-care organizations now being piloted in New Jersey and nationwide — is to pay providers a set fee to provide all the care the patient needs. Known as population health management, it's the direction in which Ostrowsky said health care is headed.

"When the industry really changes from fee-for-service to a population management environment, the fact that you've been seeing more patients in a bigger geography will be helpful," he said.

And Barnabas will keep growing, Ostrowsky said.

"I don't have an arbitrary revenue number in mind — I think rather in terms of geographic coverage, and the ability to make care available to greater numbers of people," he said. That could mean other types of health care venues, such ambulatory sites, not just more hospitals.

It also makes it easier to recruit, he said.

"If you recruit a highly specialized physician, that physician wants to be available to a greater number of patients," Ostrowsky said. "Size gives you that."

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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