BUSINESSES POSE MERGER QUESTIONS

Cost and competition were key issues Monday as area business leaders questioned Cape Girardeau hospital administrators about the merits of the proposed hospital merger.

Officials from Southeast Missouri Hospital and St. Francis Medical Center are trying to build community support for the merger.

James Wente, administrator of Southeast, and James Sexton, president and chief executive officer of St. Francis, outlined the merger proposal for a group of approximately 70 people at a meeting sponsored by the Cape Girardeau Chamber of Commerce Monday afternoon at the Drury Lodge.

Many employers questioned what the proposed merger would mean to their health-care costs.

Hospital officials project savings of $44.4 million over five years if the merger goes through. That savings is balanced against a projected loss, also over five years, of approximately $25 million in federal funding for Medicare.

The hospitals are willing to enter into a consent decree with the Missouri attorney general to guarantee those cost savings. As part of the consent decree, they are willing to offer a two-year price freeze for consumers and insurance companies followed by a three-year period in which any cost increases would be tied to the Consumer Price Index.

Kathy Brown of Procter & Gamble Co. said that the project savings apply only if no new entities -- another hospital or a surgery center -- enter the market.

"Doesn't that reek of not wanting competition?" she asked.

Brown and others also said the hospitals will have to work harder to get businesses to support the merger.

Hospital officials have met with several employer groups to outline the merger plan, and Brown said business leaders have been "very consistent" in voicing their concerns about health-care costs and competition.

She said the local P&G plant lost "a big chunk" of business because its health-care costs were too high.

The local plant has the potential for further growth, Brown said, "but it will not come if we don't have health care that is competitive, and right now it clearly is not competitive."

She said neither hospital is offering managed-care discounts "that even come close" to what P&G now receives through providers in St. Louis.

Mike Herrick of Arthur Andersen, the consultant firm that did the efficiencies study on the merger proposal, said the proposed price freezes would constitute a savings to employers and consumers.

He said employers need to talk to their insurance companies to make sure the savings the hospitals offer in contracted rates would be passed on to consumers.

Jeff Perry of M&W Packaging said the hospitals haven't worked with local businesses to keep health-care costs down.

"What you're sensing is that many of the business leaders do not feel like our prices are competitive," Perry said. "They do not feel like there's a big effort to make them competitive, and there's not enough in this merger to make it competitive. Price cuts are not price freezes. They're not the same thing. If you sense that mistrust, if you sense that we don't see enough in this merger, you sense it correctly."

"Why don't you cut prices instead of saying you're not going to increase them?" asked Ernie Beussink, who recently retired from Mid America Distributing.

A price cut was one of the original options under study, said George Leonard, one of the hospitals' anti-trust attorneys working on the merger proposal. But news that the federal government was planning to cut Medicare funding to help balance the federal budget meant that option was no longer feasible, he said.

Leonard said the attorneys handling the merger "certainly urged board members that they give every consideration to a price rollback."

But with the loss of Medicare funding, he said, hospital officials weren't sure they could promise five years of price cuts.

Harry Rediger, who chairs St. Francis' board, said the three merged hospitals the Joint Study Committee has visited have been able to establish price cuts in the wake of their mergers, and cuts may become an option in the future if the local merger goes through.

"At this point we don't feel comfortable with the rollback," Rediger said. "But the freeze against the increases that we've had is really a rollback."

Mary Dunn, director of the SEMO Business Group on Health, said employers are tired of the "constant denial" that their concerns about health-care costs are unfounded.

"There definitely has to be some dialogue" between employers and the hospitals about cost containment, Dunn said.

Others questioned what the merger would mean for competition.

"I still don't see how combining two viable entities and taking away competition can be viewed as a positive when you're not competitive against St. Louis now," said Larry Stahlman of P&G.

Stahlman said some costs, with managed care discounts figured in, are 1.5 to 2 times higher in Cape Girardeau than in St. Louis.

The Cape Girardeau hospitals are competitive against each other and against other hospitals in Southeast Missouri, said economist John Joyce, a consultant to the hospitals on the merger project.

Joyce said he can't get data on individual employers' contracts with health insurance providers, but discharge rates for the state's hospitals do show health-care consumers in Southeast Missouri have options on where to receive care, and they are exercising those options.

In Scott County, for example, 45 percent of hospital patients are discharged from Missouri Delta Medical Center in Sikeston.

That means 55 percent -- including the 7 percent who went to St. Louis hospitals -- are traveling outside Scott County for their health care, Joyce said.

Those patients on the fringe areas of the Cape Girardeau hospitals' service region are a key part of the local hospitals' customer base, Joyce said.

He said health-care consumers have to take a broader view of competition and the hospitals' service area, which includes nine surrounding counties in Southeast Missouri and Southern Illinois.

Joyce said Southeast and St. Francis -- or the merged entity -- might be "the only game in town" in Cape Girardeau County, but people in the outlying service area have plenty of other choices.

If the hospitals were to raise rates, then consumers in Scott County or New Madrid County or other counties with hospitals could choose other hospitals, and the loss of customers would offset any increased profit from price increases, he said.

Viewed in the larger market, said Tom Campbell, an anti-trust attorney working on the merger for the hospitals, joining the two Cape Girardeau hospitals wouldn't reduce competition by much.

"If you sit here and think, this is a two-hospital market, that's not what the analysis shows," Campbell said. "Our view is that Cape Girardeau is a competitive market, and putting these two hospitals together doesn't change that."

The hospitals will hold a town hall meeting at 7 tonight at the Osage Community Centre to gather more input on the merger proposal. The Missouri attorney general's office will hold a public hearing at 6:30 p.m. Sept. 28 at the Osage Community Centre.

The Cape Girardeau County Commission has endorsed the merger, and the Cape Girardeau Board of Education voted Monday night to endorse the merger after hearing a presentation on the proposal.

TONIGHT

The hospitals will hold a town hall meeting on their proposed merger at 7 tonight at the Osage Community Centre.