Health Systems

How UTSW and Children’s Health’s Master Affiliation Could Impact Cost

UT Southwestern and Children’s Health have long been partners in providing healthcare for North Texas children. For over six decades, the two organizations have had a clinical, academic, and research affiliation, but now they have created a separate nonprofit entity to develop a joint pediatric enterprise in the form of a master affiliation. So is the increased partnership a boon for North Texas residents that will improve quality and best practices, or will the organization have more leverage against payers and be able to increase prices?

The affiliation involves two of the biggest players in North Texas healthcare. The Dallas Morning News reported that UT Southwestern pulled in $2.73 billion in operating revenue last year, and Children’s Health reported $1.75 billion. Children’s Health was already the eighth largest pediatric provider in the country, and UT Southwestern’s University Hospital is the best in DFW according to U.S. News and World Report. Neither organization cracked the top ten in the country.

The new nonprofit entity does not yet have a name, and the two sides are still working on whether or not to rebrand. The organizations say the details should be finalized in the next 12 months.

The alignment strengthens another piece of the UT Southwestern health network, and follows a partnership with Texas Health Resources. That organization, named Southwestern Health Resources, gives UT Southwestern a much wider reach through the dozens of Texas Health Resources hospitals in the region, and gives Texas Health increased connection to the expertise of UT Southwestern physicians. The first hospital built under the agreement is Texas Health Frisco, which will combine an environmentally-friendly campus with UT Southwestern physicians, who will share space on the campus and treat patients in the hospital.

But why create an increased pediatric partnership when the organizations have been working together for so long? A Dallas Morning News editorial expresses hope and optimism for the joint enterprise, but not without some skepticism. “And even now that the deal is done, we remain uncertain about either its origins or purpose. These are, after all, two institutions that at least appeared to work hand-in-glove for generations,” the article says.

UTSW President Dr. Daniel Podolsky told DMN that ”strategically, the two organizations aren’t necessarily rowing in the same direction,” and said he didn’t know about Children’s Health’s purchase of 72 acres in Prosper until he read about it in the news. This new partnership would presumably better connect the organizations and avoid these conflicts.

In a Q and A submitted by the affiliation, the organizations explained the relationship. “By creating a joint pediatric enterprise, we will be able to continue our longstanding work together and leverage each of our organizations’ expertise. We believe that our collective organizations are stronger together and offer kids and their families in our community the absolute best care in the region.”

The argument that consolidation between large organizations creates organizational efficiencies and best practice quality improvements is one that is often put forth when these sorts of partnerships are created. When Baylor Scott and White and Memorial Hermann were on the path for a merger, Memorial Health System President and CEO Charles Stokes talked about how accessing the best practices from the added physicians would allow them to accelerate new models of care, embracing technology that would further reduce costs.

Though the affiliation is not a merger, it echoed the same argument in its Q and A. “We are confident that better collaboration will greatly benefit our patients, their families, the North Texas community and our respective organizations by allowing us to leverage one another’s expertise, research, team members and physicians. This agreement will facilitate a more closely aligned partnership that will vastly improve our joint decision-making and operational alignment so we can provide the best pediatric care in the region, and ultimately, improve our ability to make life better for children.”

In a letter to UTSW employees, UTSW President Dr. Daniel Podolsky wrote that the new affiliation would “serve as a catalyst for comprehensive, multidisciplinary, coordinated pediatric primary and specialty care for the children of North Texas,” and “support the academic missions by providing students, residents, and other trainees with expanded opportunities, as well as by providing fresh avenues for promoting clinical trials and other forms of clinical research, and translational research initiatives.”

But there are doubts about how this connection will affect cost. “I’m looking at this with some skepticism,” Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health, told The Dallas Morning News. “Health care costs in DFW are among the highest in the country, and consolidation usually drives prices higher.”

Similar to the now canceled Baylor and Hermann merger, UTSW and Children’s Health are not direct competitors, as UTSW physicians already work in and with Children’s Health facility, but increased unity could improve leverage against payers. Though the organization says the master affiliation is not a merger, Children’s Health’s Q and A says the two organizations will have “equal and shared governance, including membership and board voting rights from Children’s Health and UT Southwestern, to ensure total alignment and partnership in our strategic priorities as we collectively work to care for the children of North Texas.”

That “total alignment” could mean more negotiating power against payers, which are increasingly moving into the provider space as well. A Robert Wood Johnson study said that “When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.” The report also describes how quality decreases when the market becomes less competitive. If the costs are going to be the same, hospitals are forced to compete for quality. When there is less competition in a region, the pressure to have the highest quality care decreases. The study showed decreases in hospital mortality in more competitive markets, and other studies make the same argument. Dallas is already one of the most expensive places in the country to receive healthcare, and increased consolidation may only exacerbate the problem.

But with much of Children’s Health revenue coming from Medicaid patients with set reimbursement rates, there may not be much room to increase rates. In 2018, 67 percent of Children’s Health patients in Dallas were covered by Medicaid. Even in much wealthier Plano, 51 percent of patients were covered by Medicaid. But the system’s expansion northward adds a presence in a community that is increasingly unlikely to be on Medicaid. In Prosper, where Children’s Health is building a new hospital, median income is $134,000 and less than 7 percent are economically disadvantaged. The average statewide is 44 percent.

The coming years will determine the impact of the master affiliation, but UT Southwestern and Children’s Health are both excited about the potential. “For now, I hope you share in my enthusiasm and excitement for the future of UT Southwestern’s pediatric mission,” Podolsky writes.

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