As Beaumont and Spectrum explore a merger, executives from both health systems work to stabilize costs, improve care and are attracting and retaining talent.
But payer costs remain a critical concern for employers and private insurers across the state.
Spectrum Health in Grand Rapids is considerably more expensive for payers than Beaumont, according to a study published by the Rand Corp. in September. The Rand data compares what Medicare pays for hospital services, including facility and professional fees for inpatient and outpatient care, with what private payers pay for the same hospital services at the same facility.
For example, employers and private insurers at Spectrum's flagship Grand Rapids hospital are paying 282 percent above what Medicare pays for outpatient services and 234 percent above Medicare for inpatient services — or an average of 250 percent for both inpatient and outpatient services, using 67 inpatient and 550 outpatient services as inputs, according to Rand.
That's considerably more than what Beaumont charges at its Royal Oak hospital, which is 137 percent above Medicare for outpatient services on average and 211 percent for inpatient services — or 177 percent above for both inpatient and outpatient services, using data from 49 inpatient stays and 340 outpatients services.
In dollars and cents, the standard cost for a non-Medicare patient for outpatient services at Spectrum Grand Rapids is $254.68, compared to $128.99 at Beaumont Royal Oak.
For an inpatient stay, the standardized cost is $21,743 at Spectrum Grand Rapids versus $17,422 at Beaumont Royal Oak.
Bret Jackson, president of the nonprofit Economic Alliance for Michigan, said Spectrum's dominance on Michigan's West side has made it more expensive.
"(Spectrum) is a large system that has gained a lot of market share," Jackson said. "What we're afraid of with this merger is they will again reduce competition and be able to command more money."
The Economic Alliance represents employers, including General Motors Co., Ford Motor Co., Lear Corp. and others to advocate for higher quality and controlled pricing in health care. Its members provide health benefits to roughly 900,000 people in Michigan. Blue Cross Blue Shield is also a member. Spectrum owns Priority Health, which is a competitor of Blue Cross.
Beaumont's least costly offering for outpatient services is its Farmington Hills hospital at 110 percent above Medicare for outpatient services. For Spectrum, its lowest outpatient services are found at its hospital in Fremont, which charges payers 183 percent above Medicare.
"Medicare is a baseline on costs and takes into account geography, populations and other metrics," Jackson said. "Anyway you look at it, Spectrum is just more expensive."
Spectrum disputes the Rand data, arguing the sample size is much too small to be representative of the health system's charges.
"We believe the data in the Rand Study to not be fully representative and was based on a very small data set for a very small percentage of our patients," the health system said in a statement. "We are not aware of any Michigan-based insurance provider that participated in the study and the rates are not current. ... We caution that when comparing payments between commercial payers and Medicare, it is widely accepted that Medicare reimburses well below the cost of providing care. While cost studies are important, Spectrum Health strongly believes that price transparency should be paired with corresponding quality care and out-of-pocket-cost data. Without the full picture of cost and quality of care, consumers may make poor health care choices and pay higher costs, without seeing improvements in the care provided."
Spectrum was not able to offer the correlating out-of-pocket cost data.
Spectrum maintains that it will lower costs, not raise them, with the creation of the new $12 billion health care system with Beaumont.
"At Spectrum Health, we are working toward becoming more affordable and taking steps in that direction. For example, our price increases for 2020 and 2021 were less than inflation at 1.5 percent," Spectrum said in a statement to Crain's. "We believe that BHSH System, created by Beaumont Health and Spectrum Health, will enable even more affordability in the future while continuing to deliver care at the highest quality. This process will take time but it is a top priority."
It's still uncertain how Spectrum would deliver lower costs in the merger, especially in Southeast Michigan where Beaumont is already competitive.
A study published in 2016 and revised in 2018 from researchers at Harvard and Princeton universities concluded that cross market in-state hospital mergers resulted in price increases of 7 percent to 9 percent.
Coincidently, hospitals acquired by out-of-state health systems do not result in significant increases. Beaumont planned to merge with Illinois-based Advocate Aurora Health last year before the deal fell apart.
