LEGACY’S PURCHASE OF PACIFICSOURCE HAS HAD QUESTIONABLE IMPACT ON FIRST RECIPIENTS

Industry consolidation is supposed to lead to better outcomes, according to the consolidators. But what’s happening in the case of PacificSource and Legacy? One year after Legacy’s acquisition, it’s time to check in on the first recipients of insurance under the partnership—Legacy’s employees.

After approval from state authorities, Legacy Health, an Oregon-based hospital and healthcare delivery provider, acquired a stake in PacificSource, an Oregon-based insurance company. Legacy and PacificSource finalized their partnership in September of 2016.

Legacy, one of Oregon’s largest healthcare providers and hospital operators, dipped into its cash reserves to invest an initial $100 million into PacificSource in 2016. For each of the following five years, Legacy will invest $29.5 million annually into PacificSource. Legacy’s total contribution into the insurance company will be $247.5 million, at the end of which Legacy will hold a 50% interest in PacificSource.

How have Legacy employees fared under the PacificSource/Legacy plan?

The first members of Legacy’s new health plan were their own employees: “…these 19,000 members will help prove the strength of this partnership and show how well our insurance plan can serve a complex and large organizations such as our own.”

And what has this partnership resulted in for employees?

  • The first year that employees switched to PacificSource, Legacy employees saw their medical premiums increase.
  • A $2 million increase in expected costs “due to change to PacificSource,” accounting for more than a third of the medical premium rate increase.
  • When Legacy switched away from PacificSource for its vision plan for plan year 2018, premiums decreased by 23%. [i]

The partnership was supposed to leverage each organization to better serve providers and their patients. Yet Legacy hospital workers—the first group subject to this new partnership—have seen their premiums increase, and healthcare has remained difficult to afford.

Who has benefited from Legacy’s investment in PacificSource?

If the first population served by the PacificSource/Legacy partnership is continuing to struggle, who is benefiting? A clear beneficiary of Legacy’s multi-million-dollar investment into PacificSource has been PacificSource itself.

In June, 2017, A.M. Best upgraded PacificSource’s credit rating. The rating agency said the upgrade reflected PacificSource’s “strategic role within an integrated health care delivery system as part of PacificSource and Legacy Health.” The partnership with Legacy not only added a large influx of capital (money) but also guarantees influxes of money over the next five years. PacificSource had operating losses in 2016; the insurance provider has reported strong operating results for the first six months of 2017.

But will Legacy and PacificSource members, patients and employees be afforded improvements as well?

Should Oregonians expect lower costs from the PacificSource/Legacy partnership?

Consolidation in the healthcare market is expected to lead to such things as lower prices, better customer service and more innovation. But reality sometimes tells a different story. Numerous studies have reviewed the ramifications of hospital mergers and documented that such mergers can lead to higher prices, without any measured impact on quality. [ii]

But what of vertical consolidation, like the partnership between Legacy and PacificSource? Will PacificSource use its new-found efficiencies to lower its prices, improve care, and spur competition? If the experience of Legacy employees is representative, it is highly uncertain that lower healthcare costs will be achieved.

Unfortunately for Oregonians, PacificSource insurance rates for 2018 do not tell a story of consolidation resulting in lower costs. State-approved premium rates for ACA-compliant plans show PacificSource having the highest rate for individuals, and second highest rate for small group coverage. [iii]

Part of Oregon’s insurance company regulation requires the state to consider whether a proposed merger or acquisition “would sustainably diminish competition in insurance in this state or tend to create a monopoly.” The Director of the Oregon’s Department of Consumer and Business Services concluded that the combination of a primarily hospital-market presence with an insurance company would not affect the market share of insurers in the state. “Nevertheless, DFR [Division of Financial Regulation] will continue to monitor the evolution of health care system integration to assume against anti-competitive practices.”

Endnotes

[i] Sept 12, 2017 letter to SEIU Local 49 from Legacy Health.
[ii] https://www.brookings.edu/testimonies/health-care-market-consolidations-impacts-on-costs-quality-and-access/ , Gaynor, M., and R. Town, The Impact of Hospital Consolidation – Update, Robert Wood Johnson Foundation Synthesis Report (June 2012).
[iii] Rates are for Silver Standard Plan premiums for a 40-year-old in Portland, http://dfr.oregon.gov/healthrates/Documents/2018-fnl-prpsd-rates.pdf