Giving birth is always stressful, but for Meghan Grover, uncertainty about the future of her local hospital added a layer of concern.
“We were not sure where we would deliver the child,” Grover said.
Grover wanted to have her baby at Sharon Hospital in northwest Connecticut. The hospital is about 20 minutes from Millbrook, New York, a rural village where Grover and her family live. Much of her community relies on it for care.
It’s also where Grover had her first child – a breech baby. The alternative would have been driving to another hospital in Torrington, which is about an hour away, and staffed by a different care team.
“That was definitely nerve wracking at the time,” she said.
Grover’s anxiety stemmed from the fact that while she was pregnant, the labor and delivery unit at Sharon Hospital was at risk of closing down. The hospital’s owner requested in 2022 to eliminate the hospital’s maternity services, which it said were losing money.
Finances at Sharon Hospital have long been unsteady. But when Grover had her kids, a major change was also unfolding behind the scenes. A few years earlier, the hospital joined a newly-formed health system, Nuvance Health, which operates in western Connecticut and New York.
Health systems allow individual hospitals to team up for cost savings. After Nuvance Health formed, however, records show those anticipated savings were slower to materialize than expected.
At the same time, Sharon Hospital’s bill for participating in the health system rose sharply. Records show it grew to more than $7 million per year. The steep increase came during the period before Nuvance Health requested to shutter the hospital’s labor and delivery unit.
For Grover, the experience raises questions about the benefits of hospital consolidation. It also underscores the importance of hospital leaders being attuned to local needs, particularly in rural communities like hers, she said.
“You run out of milk at night, and you just don't have milk for the day. That’s sort of the nature of where we live,” Grover said. “… But for health care services, it's hugely, hugely important to have a resource that's within 20 minutes’ drive.”
Hospital consolidation
Many independent hospitals join health systems to save money on expenses such as malpractice insurance, accounting and legal work. Hospitals can also pool their purchasing power to negotiate better rates for drugs and supplies. Hospitals pay the health system for their share of those costs.
The model is now common across the United States, including in Connecticut, where most acute and general care hospitals are part of a larger system.
As affiliations and mergers bring more hospitals into those systems, however, the fees they pay to parent organizations are also growing.
An analysis by Connecticut Public found health system fees more than doubled at hospitals in the state in less than a decade, rising from about $748 million during the 2017 budget year to more than $1.6 billion in 2024, according to tax filings and annual reports the hospitals provided to state regulators.
Health systems say the fees are tied to shared services that each hospital receives, and that being part of the health system offers additional benefits, such as access to advanced technology, and fiscal stability during a cash crunch.
But research suggests consolidation can also drive up health care spending without producing significant benefits for patients.
A study released last year by the Connecticut Office of Health Strategy (OHS) found that in most parts of the state, hospitals that increased their market power by joining health systems hiked their prices faster than other facilities, and saw more growth in high-profit services, such as cardiac care, and slower growth in less profitable services such as childbirth and behavioral health.
Many hospitals now pay millions each year to their parent organizations. In Connecticut, officials have little insight into how these health system fees are derived. There are no laws governing these fees, nor are there guidelines on exactly which services can be included, or caps on how much health systems can charge member hospitals.
Records show state regulators rarely scrutinize the amounts reported by hospitals each year, making it difficult to distinguish between shared services and administrative costs that support the health system.
“We look at the trends and we report all the trends. We don't look at the reasonability of it, because we can't,” said Olga Armah, manager of research and planning at OHS, which collects the information.
State law requires hospitals to report any financial transactions with parent organizations, including how much they pay into the system each year. If the fees rise significantly from one year to the next, hospitals must explain the increase in their financial filings. However, the notations contained in these variance reports are rarely detailed, and sometimes consist only of a few words beside a line item on a spreadsheet.
OHS can request more detailed information, but records suggest it made those inquiries infrequently in recent years, as health system fees continued to rise.
Armah said state regulators don’t have the power to dive much deeper because it isn’t their role.
“A lot of times the information we collect helps us make decisions about policy and also for suggesting legislation,” she said. “Most times we don't have enforcement authority, so that's all we can do. Read, shed light on the situation, and then propose legislation as appropriate.”
Savings and efficiency
Ellen Andrews, a longtime health policy analyst in Connecticut, said she started raising questions about health system fees several years ago while working at the state legislature. Andrews said the fees are opaque, making it hard to know how much is being spent on health system administration.
“It’s hundreds of millions of dollars for something we don’t really have a good answer to what we’re buying for it,” Andrews said.
Four large health systems and a for-profit entity now control most of the acute care hospitals in Connecticut. None agreed to be interviewed for this story.
Hartford HealthCare, Yale New Haven Health System and Trinity Health of New England said in written statements their hospitals save money by centralizing many functions. They can reinvest those savings into things like patient care, capital projects and community services, the organizations said.
Tina Varona, senior director of media relations for Hartford HealthCare, said the system brings a “unified focus on improving access, affordability, quality and reducing health disparities.”
“This is a very common way for organizations to provide administrative functions,” Varona said. “We are proud that we have kept these services local to Connecticut, as the core services help bring business to the State.”
Dana Marnane, a spokesperson for Yale New Haven Health, said its hospitals benefit from an economy of scale, providing a significant savings. Marnane said health system fees go toward services that improve patient care, including electronic medical record and information technology systems.
“As we consolidate more services across the system, these allocations may increase while costs at our facilities will decrease,” Marnane said.
Brianna Barnes, media relations and communications specialist at Trinity Health of New England, said hospitals benefit from a shared services model, and they would pay more for expenses such as finance, supply chain and human resources on their own.
“As we make greater use of these services to improve efficiency and consistency, the associated charges have increased accordingly,” Barnes said.
Another large health system, private-equity owned Prospect Medical Holdings, declined to respond to written questions. Prospect’s three Connecticut hospitals reported paying no corporate parent fees in recent years while under its ownership.
Those facilities, Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital, face an uncertain future after Prospect filed for bankruptcy in January.
Cost of compliance
Paul Kidwell, senior vice president of policy at the Connecticut Hospital Association, said health care infrastructure is expensive, and so it makes sense for hospitals to merge.
“I think it's money that is being spent on patient care of the hospital, just in a different way than it was being spent before they were part of the system,” Kidwell said.
Johns Hopkins professor Ge Bai agrees. She said all hospitals are saddled with a mountain of regulations, so it makes sense for small ones to join a larger system.
“The regulatory environment is getting harder and harder for hospitals to navigate,” she said. “This is one of the reasons that small hospitals want to be acquired by large ones. Then the small ones can just delegate regulatory compliance, auditing, IT and other overhead stuff to the parent company.”
But Bai said higher fees don’t necessarily translate into better care. She described the fees as “wasteful.”
“If we really want to deal with the high price and unaffordability of U.S. health care, those compliance costs, administrative costs and overhead, must be addressed,” she said.
Mounting losses at Sharon Hospital
Nuvance, established in April 2019, aimed to improve the financial health and sustainability of the hospitals it controls in Sharon, Norwalk, Danbury and New Milford, Connecticut.
It was formed through a merger of two existing health systems, Health Quest Systems and Western Connecticut Health Network.
In documents filed with state regulators, Nuvance reported achieving some of its goals integrating the two systems, including moving human resources, payroll, finance and supply chain platforms to a single unified system. It also established common standards for nursing performance, management and staffing, and cut down some back-office costs.
As those functions shifted to the health system, Nuvance recorded a significant increase in the fees it charged to its member hospitals.
At Sharon Hospital, health system fees grew from less than $1 million per year to more than $7 million. Fees also consumed an increasing share of the hospital’s total yearly program service revenue, growing from less than 4% before the formation of Nuvance Health to more than 14% percent after.
But the cost-saving improvements Nuvance Health envisioned weren't fully realized, in part due to the COVID-19 pandemic, which forced the health system to delay or forgo some integration tasks, such as merging health records from the two organizations. The pandemic also sapped its ability to expand its ambulatory care infrastructure. It saw patients seek care elsewhere as outpatient treatment became more popular.
Like other health care organizations, Nuvance also struggled with higher prices for labor and supplies, and had difficulty retaining staff amid a nationwide shortage of health care providers.
As a result, it recorded growing losses that it said became untenable. During the 2023 budget year, Nuvance Health reported an operating loss of more than $164 million, including a loss of $24 million at Sharon Hospital.
In documents filed with state officials, representatives of Nuvance wrote that it tried to strengthen Sharon Hospital's labor and delivery program, but faced fundamental challenges, such as underutilization, patients opting to deliver at larger hospitals, and difficulty recruiting and retaining physicians.
A spokesperson for Nuvance Health said that it would be misleading and inaccurate to conclude that management costs are driving up the fees that Sharon Hospital pays into the health system. Nuvance said consolidating back-office functions increases efficiency and reduces duplication.
Push for transparency
State Sen. Saud Anwar, who chairs a legislative public health committee, said it’s impossible to assess health system fees without more transparency about what they include.
“It could be very justifiable, or it could not be justifiable,” Anwar said. “And I cannot answer that, and neither can anyone else, until we have that information.”
Anwar said prior attempts to mandate more detailed disclosures from health systems have failed in the legislature, in part because lawmakers worry about imposing additional burdens on smaller hospitals that are already struggling financially.
With its losses mounting, Nuvance Health announced last year it would merge with Northwell Health, another nonprofit health system in New York. As part of the agreement, Northwell has agreed to preserve labor and delivery services at Sharon Hospital for five years. Northwell said it anticipates it will take at least that long for the Connecticut hospitals to stabilize.
Grover, the mother from New York, gave birth to her second child at Sharon Hospital last year. She said nonprofit hospital leaders shouldn’t forget that they provide a public service.
“They get a lot of support from state and federal governments, and the primary focus shouldn't be them as profit centers, but should be care for people and communities that they're based in,” she said.
Jim Haddadin contributed to this report.
