Appalachian Hospital Merger Exposes Tension over Rural Healthcare Access
Regulators have put in place measures they hope will protect consumers in rural Central Appalachia from harm that might result from the merger of competing healthcare systems into a regional monopoly. Some community members are skeptical.
A group of protestors has been camped outside of the Holston Valley Medical Center in Kingsport, Tennessee, for over 170 days, eating, sleeping, and making themselves heard near the entrance. They are protesting the shuttering of the hospital’s neonatal intensive care unit (NICU) and the downgrading of its trauma center following last year’s controversial merger of the two largest health care systems in a rural 21-county region in northeastern Tennessee and southwestern Virginia. The merger has also resulted in the relocation of Kingsport’s orthopedic trauma care center and several of its specialists to Johnson City, Tennessee, a 30-minute drive away.
Ballad Health, the new regional monopoly formed by the merger of Mountain State and Wellmont, says that streamlining and consolidating services will make health care more efficient and ultimately improve quality of care. But the protestors and some local health care professionals disagree. Johnson City is nowhere near the region’s geographic center, and people are worried about consolidating so many critical intensive care services there and lengthening the drive to the nearest trauma center for people in remote areas. As the city prepares for an influx of patients, some surgeons and protesters are warning it won’t be able to handle them all.
“You want to send everybody to Johnson City that is already understaffed, already overworked, that only diverts patients here?” said Dani Cook, a leader of the Kingsport protests, whose granddaughter was born prematurely at the now-shuttered NICU. “This just doesn’t make any sense.”
For Ballad’s patients in southwestern Virginia, the travel time to access many services will be even longer. And while no hospitals in that area have closed altogether since the merger, many have cut services and the number of available beds, according to Starla Kiser, an independent physician in Wise County, Virginia, who has been openly critical of Ballad.
“What I have seen from my bird’s-eye view is the local hospitals that they promised wouldn’t close effectively closed,” she told Facing South. Kiser regularly refers patients to Ballad-operated hospitals for procedures or tests she can’t do at her clinic, and said that she’s seen patient costs go up even as quality of care, in her view, goes down. Consolidation, she says, is making it difficult for patients to get the care they need without traveling far out of their way, in some cases across state lines. “A lot of the local hospitals are more like Band-Aid shops,” she said. “Yes, regionalize complex procedures, but don’t regionalize bread and butter services.”
Ballad says that, under the competitive health care system that used to exist in the region, Wellmont and Mountain States were duplicating services and wasting money. Now that Ballad has a monopoly on the region, it can trim what it views as excess services.
“About 30 percent of all health care spending is waste. It’s just complete waste,” Anthony Keck, a Ballad executive vice president, told Facing South. “That big national reality was playing out on the ground in this region.”
Enabling Hospital Monopolies
The health care delivery system in the rural South is in a precarious position. For-profit providers have little incentive to stay in poor rural communities while nonprofit systems are bleeding money. And a well-documented rash of rural hospital closings has spooked state governments, with at least 73 rural hospitals shuttering across the South since 2010. Some believe that to keep hospitals open, mergers — and even monopolies — could be necessary.
Under normal circumstances, the Federal Trade Commission (FTC) would contest a merger like the one that created Ballad as an illegal monopoly. But laws passed in at least 18 states beginning in the 1990s let those states preempt the FTC by using what’s called a certificate of public advantage (COPA), a legal mechanism that allows a monopoly-creating merger between competing hospitals to avoid federal antitrust scrutiny so long as the state determines that the merger’s benefits outweigh any disadvantages associated with the loss of competition and agrees to step in as a regulator. Four of the six mergers that have happened under COPA legislation have been in the South — North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
“What I have seen from my bird’s-eye view is the local hospitals that they promised wouldn’t close effectively closed.”
In the 1990s, two South Carolina hospitals combined under a COPA to create Palmetto Health. That same decade, two hospitals in Western North Carolina merged to create the nonprofit monopoly Mission Health, which is often cited as a cautionary COPA tale. Back in the 1990s, Mission Health was the only hospital system to apply for a COPA under North Carolina’s 1993 law. But by 2015, Mission had amassed enough political sway to get the state’s COPA statute overturned — nixing its own regulation and giving itself an unregulated monopoly over health care in Western North Carolina.
“And then, as soon as that happens, all of the worst consequences of hospital monopoly immediately burst out in the open,” said Erin Fuse Brown, a legal scholar at Georgia State University who has studied the Mission and the Ballad mergers. Prices went up across its coverage area and Mission, which could not sell to a for-profit system under the terms of its COPA, was quickly sold to the for-profit HCA Healthcare. That deal was finalized earlier this year.
Now, COPAs are seeing a resurgence. The state legislatures of Tennessee and Virginia amended state law in 2015 to allow the Ballad Health merger to take place, and the following year West Virginia’s state legislature passed a COPA law to facilitate a controversial merger between Cabell Huntington and St. Mary’s in Huntington, West Virginia. And the FTC is concerned: For the last two years, the agency has been working to assess the impact of COPAs. This week it ordered Ballad Health and Cabell Huntington to provide a slew of data on employee wages, patient billing and discharges, and “other information relevant for analyzing the health systems’ prices, quality, access, and innovation” as part of a study that will analyze the effects of the Ballad and Cabell Huntington mergers several years down the road.
Every COPA is different because the terms of the agreement are negotiated between the state’s regulatory agency and the health care company. Making comparisons between COPAs in different states is in many ways like comparing apples and oranges, but there are still some lessons to be learned. And as states like Tennessee and Virginia begin using the COPA in part, they say, to protect rural health care access, antitrust experts and regulators warn that there are many pitfalls — especially because it’s not clear what the regulatory landscape will look like in 10, 15, or 20 years.
“The long-term risk is that politically everyone will sort of forget why the COPA is there, and then do away with it,” Brown said. “And then you’re left with an unregulated hospital monopoly.”
An Uncertain Future
Tennessee and Virginia are the most recent states to implement a COPA as a stopgap attempt at preventing further hospital closures. The alternative to a merger, Ballad told state officials repeatedly, was that the two original health care systems, their budgets in the red, would have no choice but to close rural hospitals or sell to another buyer who would do the same.
So the states negotiated a deal with Ballad that substitutes state regulatory oversight for competition. The Ballad merger is the first of its kind to cross state lines and involves an unprecedented level of coordination between the regulatory agencies charged with enforcing the COPA.
Under the agreement, Ballad has promised to keep rural hospitals open for at least five years, though it is allowed to repurpose them and cut services as long as it warns regulators first. It’s submitted plans to the states outlining how it intends to increase access to mental health care and children’s health care as well as access to services in rural communities, and it has committed several million dollars to population health initiatives. The FTC opposed the merger, but Tennessee and Virginia proceeded anyway.
Regulators in both states told Facing South that they’re hoping to see an increase in the overall population health of their corner of Appalachia, one of the nation’s poorest and least healthy regions. Tennessee Deputy Attorney General Janet Kleinfelter, whose office is overseeing the merger in that state, said that there are concerns about the regional population’s increasing age and high rates of poverty and addiction.
“Probably one of the biggest factors [in allowing the merger] is the health of the population,” Kleinfelter said. “It is by far the most unhealthy population in the state, both in Tennessee and in Virginia.” Ballad plans to fully reopen one rural hospital in Lee County, Virginia, by next fall.
As part of its COPA agreement, Ballad has promised to increase quality of care along several metrics. The Virginia Health Department, which is overseeing the merger in that state, is working with Ballad to retool some of those metrics it had been using. Speaking at an FTC event on COPAs in June, Joseph Hilbert, the department’s deputy commissioner for governmental and regulatory affairs, noted that Ballad “has a lot of balls in the air right now” and asked, “Can they deliver on what they promised?”
Regulators took what steps they could to ensure that what happened in North Carolina with Mission won’t happen with Ballad. The Tennessee agreement requires that if the COPA is ever terminated several of its conditions will still be enforced; antitrust regulators could also swoop in. However, if either state’s legislature scraps the statutes that made the merger possible, the region could be left with an unregulated hospital monopoly. There’s also concern that as state regulators cycle out of office there could come a time where nobody who negotiated the original agreement is still around, which could lead to laxer enforcement and monopoly-like conditions without easy recourse.
There’s a plan for how the two merged companies would separate if the COPA agreement were to be terminated, but experts and the FTC caution that it could be nearly impossible to unscramble the eggs. There are also concerns about what would happen if one state but not the other eventually decides to terminate the COPA; Brown, the legal scholar, said that “would be very destabilizing for the region.”
Ballad “has tentacles in everything that happens in our community,” Scott Fowler, CEO of Holston Medical Group, said at the June FTC panel. And the merger’s impact is already being felt by patients and employees alike. Modern Healthcare reported in September that Ballad has sued 5,700 patients to collect on unpaid medical bills in a region where median incomes are $10,000 to $35,000 less than Tennessee and Virginia’s respective statewide averages. It also reported that many Ballad employees, including nurses and doctors, are unhappy with the merger.
“I just felt like the direction that everything was going was unsafe and that we were completely marginalized from the decision-making process,” John Keeley Jr., a former trauma surgeon at Holston Valley Medical Center, told Modern Healthcare. Keeley resigned after the merger.
Ballad’s executives say they’re working to address these concerns by forming an Accountable Care Community group, composed of 200 community organizations and stakeholders from around the region. But many local patients and physicians aren’t so sure.
“They were trying to scare everybody here that if this merger didn’t proceed, hospitals, doctors would leave, our economy would suffer,” Kiser, the Virginia physician, said. “What I’ve seen is, all of those things they scared us about are still happening.”