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UWM professor wonders whether proposed merger for Advocate Aurora would cut health care costs

Saint Luke's Hospital of Kansas City is one of the 18 hospitals in the Saint Luke's Health System. Two-thirds of the COVID-19 patients transferred to Saint Luke's from rural areas need intensive care. "We get the sickest of the sick," says Dr. Marc Larsen.
Chuck Quirmbach
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Saint Luke's Hospital of Kansas City is one of the 18 hospitals in the Saint Luke's Health System. Two-thirds of the COVID-19 patients transferred to Saint Luke's from rural areas need intensive care. "We get the sickest of the sick," says Dr. Marc Larsen.

The planned merger announced Wednesday between AdvocateAurora Health and Atrium Health would create a firm with more than five million patients across six states. Two in the Midwest — Wisconsin and Illinois, where AdvocateAurora is based, and four states in the Southeast, where Atrium is located. The new organization would be headquartered in North Carolina, with strong ties to the Wake Forest University School of Medicine.

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Photo from UWM website
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UWM Economics Professor Scott Adams

UW-Milwaukee Economics Professor Scott Adams says the deal would continue the consolidation of the health care industry that's been going on for decades, including in Wisconsin. Adams says the theory is that combined companies can better share use of information technology, have better access to money to keep open rural and urban hospitals, and gain efficiencies.

Adams tells WUWM: "After all, if you think about breweries consolidating, as they get bigger, they get more efficient at producing beer. And, it works in some sectors."

To continue the beer analogy, whether the merged firm to be known as Advocate Health would taste great or be less filling, or be the champagne of cardiac care, is hard to say. Adams says just don't count on it to be less expensive for health care consumers.

"Where consolidation has increased, we have not seen a fall in prices. We've actually seen a rise in health care prices. I mean, the issue is, we still operate in a fee for service model in the health care sector. Ultimately, the hospitals are going to be reimbursed from the health insurance companies, and the bigger they are, the more negotiating power they have, and there's really no pressure to put the prices low. What would really put the pressure on reducing prices is competition," Adams says.

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photo from the UWM website
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Prof. Barbara Zabawa, of the UWM College of Health Sciences

State and federal regulators still have to approve the health care merger. Professor Barbara Zabawa of the UWM College of Health Sciences says the governments typically look at anti-competitive effects a deal might have in the companies' respective marketplaces. She also says regulators are likely to consider how the new firm would meet its community obligations.

"You know, we're talking about non-profit organizations, and they do have a legal obligation to serve the community they're located in. And, if you have a governance structure that is so far removed from the local communities where you operate, it may be more difficult to fulfill those obligations," Zabawa says.

AdvocateAurora and Atrium are promising to open a new institute for health equity in Milwaukee, and are making a two billion dollar pledge to disrupt the root causes of health inequities in rural and urban areas. The two companies have combined annual revenues of more than $27 billion.

The CEOs of the two firms make several million dollars per year.

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