Moses Cone Health System has raised its prices, two years after a merger gave it control of all the acute-care beds in Greensboro, N.C.
The decision came just as a self-imposed two-year moratorium on price increases ended. That pledge was made as part of Moses Cone's October 1997 merger with 199-bed Wesley Long Community Hospital.
"We have kept that promise," Dennis Barry, president of Moses Cone, said in a written statement.
The system is not alone in boosting prices after a merger. A study published earlier this summer in the journal Health Affairs said it's typical for hospitals, regardless of ownership, to raise prices after a merger and get bolder about the increases over time (May 3, p. 2).
At Moses Cone, a 2.3% price hike in patient charges went into effect Oct. 1 at its three hospitals and its outpatient facilities.
Moses Cone, which collectively controls 1,112 inpatient beds, operates Moses H. Cone Memorial Hospital, Wesley Long and Women's Hospital of Greensboro.
Together, the three hospitals give Moses Cone control over 78% of the inpatient beds in Guilford County. When hospitals in Winston-Salem, N.C., about 30 miles away in neighboring Forsyth County, are added to the mix, Moses Cone's market share drops to about 37%, according to American Hospital Association data.
After a brief review two years ago, the Federal Trade Commission cleared the merger of any antitrust problems after the hospitals said they were working on an antitrust agreement with the state of North Carolina under the state's 1993 healthcare antitrust exemption law.
Under the law, providers can apply for so-called "certificates of public advantage" that grant providers antitrust immunity for their transactions in exchange for certain limits on their business practices. Those limits often include restrictions on price increases.
However, negotiations between the Greensboro hospitals and the state attorney general's office broke down without any agreement ever being signed. The hospitals subsequently merged, unchallenged by the feds or the state.
Moses Cone was left to police itself on price increases, making a voluntary vow not to change rates for at least two years.
An official with the attorney general's office was unable to comment on the Moses Cone price increase by deadline.
In an interview last week, Barry said two key issues forced the price hike: increasing costs for labor, medical devices and certain drugs, and decreased funding under Medicare partly caused by the federal Balanced Budget Act of 1997.
"If we hadn't had the kind of decrease in reimbursement under Medicare, for example, this rate increase, as modest as it is, probably would not have occurred," Barry said.
In a written statement announcing the increase, Moses Cone pointed out that prior to its merger of Wesley Long, Wesley Long had not increased rates in five years and Moses Cone actually reduced rates a net of 5.4% during the same period.
Barry said, "This modest price increase will not begin to replace the dollars that have been lost because of the balanced-budget act." He said the budget law will cost Moses Cone $60 million over five years.
While Moses Cone is raising prices, Barry said both its operating profit margin and total profit margin are in the black.
But Barry, who declined to provide specific financial data, pointed out that the system's operating profit margin has shrunk by nearly 40% in the past two years.
"(Price increases) clearly (are) the method of last resort," Barry said. "I think we have done everything possible. You have to have a reasonable margin in order to have a healthy organization."
According to financial data from the North Carolina Medical Care Commission, Moses Cone had net income of $43.4 million on total revenues of $364.2 million for the fiscal year ended Sept. 30, 1998.
That represents a nearly 12% total profit margin, or nearly twice the national average of 6.6% in 1997, according to the latest available AHA figures.
But for Moses Cone the figures are a significant drop from its previous fiscal year, when it earned $67.7 million on total revenues of $360.2 million, according to the state. That represented a 18.8% total profit margin.
Reaction from the Greensboro business community was sympathetic. Barry also serves as chairman of the board of the Greensboro Area Chamber of Commerce.
Barry said the rate increase "will have very little effect" on local businesses. Many of the area's major employers sit on his health system's board, and, Barry said, "I don't think any of them feel that this is an inappropriate thing."
Moses Cone isn't the only local system to raise rates.
Its only Guilford County competitor, 306-bed High Point Regional Health System, raised its prices 4.5% on Oct. 1, said Bob Duncan, High Point's vice president of finance and chief financial officer.
"We have raised our prices, but that's not due to Moses Cone," Duncan said. "The primary reason is the balanced-budget act," which will cost the hospital $22 million over five years.
Tyler Cox, a spokesman for American Express, which employees 2,800 people at a Greensboro service center, said he didn't have a comment on Moses Cone's price increase.
"It's not like it's our only hospital that all our employees are using," Cox said.
He said some employees travel as many as 90 minutes to their jobs in Greensboro and therefore would use hospitals closer to their homes.
Barry couldn't predict what, if any, future price increases Moses Cone might need.
"It's too soon to tell," he said.