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A small Missouri hospital could no longer go it alone — so it turned to KU for help

Liberty Hospital is now owned by The University of Kansas Health System. It's the most recent hospital merger in the area.
Suzanne King
/
The Beacon
Liberty Hospital is now owned by The University of Kansas Health System. It's the most recent hospital merger in the area.

The University of Kansas Health System now owns its smaller Missouri neighbor. The deal, which sparked political opposition in both states, reflects a growing trend of hospitals merging.

A hospital merger that caused a short-lived political storm tinged with Missouri-Kansas rivalries earlier this year kicks in with the start of July.

Liberty Hospital, a 177-bed community hospital on the Missouri side of the metro, will be gobbled up by The University of Kansas Health System, a Kansas neighbor six times larger.

The transaction, one of 20 hospital mergers announced in the first quarter of 2024, represents an ongoing, long-running trend in health care. To survive, hospitals need to grow.

“These are unprecedented times in health care,” Bob Page, KU Health System’s president and CEO, said during a May 1 press conference announcing the merger. “It takes forward-thinking leadership to move forward with a selection of a partner.”

Liberty Hospital started looking for a buyer in May 2023, saying it needed to merge so it could keep up with industry changes and meet demands brought on by rapid growth in Clay and Platte counties.

“It’s time for us to expand,” Dr. Raghu Adiga, the hospital’s president and chief executive, said at the time.

But when the hospital’s board announced last fall that it wanted to join the Kansas-based hospital system, sharp backlash erupted in both Topeka and Jefferson City.

Kansas state Sen. J.R. Claeys, a Salina Republican, introduced a bill that would require the KU Health System to get legislative approval before buying a hospital out of state.

In Jefferson City, Attorney General Andrew Bailey raised legal questions about the deal. And state Sen. Greg Razer, a Democrat from Jackson County, introduced a bill to prohibit Missouri hospitals from partnering with an out-of-state health system “operated by an institution of higher education” unless a supermajority of voters approved.

The Kansas legislation went nowhere. Neither did Bailey’s objections. And a fleet of lobbyists in Jefferson City ensured that Razer’s bill only made it out of committee but no further.

“It boggles my mind how more people don’t see the inherent problem with that,” said Razer, who resigned from the Senate in April to take a seat on the State Tax Commission. “Another state is literally planting a flag in ours and running it.”

Razer said his concern is that the arrangement will lead to other state universities doing the same thing. He argued that the state legislature should move forward next session to prevent that from happening.

“If KU Med wants to have a little clinic at University Health (in Missouri), that’s fine,” Razer said. “But not taking over an entire hospital system.”

How the hospitals compare

Liberty Hospital

  • Gross revenue: $1,080,651,275
  • Staffed beds: 177
  • Employees: 2,027

The University of Kansas Health System

  • Gross revenue: $15,467,600,055
  • Staffed beds: 1,348
  • Employees: 14,679

The KU-Liberty arrangement

The KU Health System has roots in the University of Kansas School of Medicine, which established the original hospital in 1906. But since 1998, the health system has been independent of the university and the state.

But Liberty Hospital exists under the New Liberty Hospital District, a governmental entity of the state of Missouri. The district, established in 1970, collects property taxes from people who live within its boundaries.

The taxing district will still exist after the deal is final, but it will “move toward” eliminating taxes, according to the merger announcement. The district will continue to own real estate, but New Liberty Hospital Corp., a nonprofit, will own the hospital’s assets, liabilities and operations. The University of Kansas Health System will control the nonprofit.

Liberty Hospital’s board of directors voted unanimously on May 1 to proceed with the merger with KU.

Under terms of the deal:

  • Employees of Liberty Hospital, including physicians, will be retained for at least one year after the deal closes.
  • Over 12 years, KU will spend $324 million on Liberty Hospital’s service areas, including Clay, Ray, Clinton, Caldwell and Platte counties. 
  • That spending will include expanding the Liberty Hospital campus, updating Liberty’s information technology systems, creating an oncology program on the Liberty campus and upgrading the emergency department.
  • The Liberty Hospital Foundation will remain a separate nonprofit.
  • The health system will appoint an advisory committee, which will “serve as liaison to the Liberty community.” Six members of the 11-member committee will represent the Liberty community. 

A Liberty Hospital spokesperson said the hospital has agreed to end partnerships with St. Luke’s Health System and University of Missouri Health Care. But she said the hospital’s relationship with Children’s Mercy Hospital would not change.

Liberty Hospital in the Northland announced last month it would partner with the University of Kansas Health System to provide services. Critics worry about the precedent it sets for other state entities crossing state lines.
Marissa K Webb Photography
/
Liberty Hospital
Critics worried about the precedent the Liberty-KU Health System merger sets for other state entities crossing state lines.

Liberty Hospital’s board president Dennis Carter warned legislators that if they blocked the deal with KU, the hospital would likely fall into the hands of a for-profit hospital chain. That, he said, could endanger important services, like labor and delivery and Liberty’s trauma center.

Whether or not KU Health System was the buyer, though, the bottom line was that Liberty Hospital could no longer go it alone, officials said.

It was far from unique. For the last 25 years, the trend has been for hospitals to merge.

Between 1998 and 2023, the United States saw about 2,000 hospital mergers. KFF, a nonprofit that reports on the health care industry, reports that 68% of hospitals had a health system owner in 2022, compared with just over half in 2005.

Research has shown that some hospital mergers lead to higher costs for patients and more limited care. That’s been seen when direct competitors merge and when hospitals that serve different markets merge.

The merger’s effects

Christopher Garmon, assistant professor of health administration at the University of Missouri-Kansas City, published a study earlier this year that found some mergers led to an average price increase of roughly 5% for commercially insured patients.

A 2018 study found that mergers in the same state, but between organizations that did not have facilities in the same geographic market, led to price increases of up to 10%. That was the concern some had about the merger between Kansas City’s St. Luke’s Health System and St. Louis-based BJC Health System. That deal closed at the beginning of the year.

It is unclear what the merger between KU and Liberty will mean for prices. They are not direct competitors, and serve somewhat different markets. But Tammy Peterman, president of KU Health System’s Kansas City division, said 35% of KU Health System’s patients already come from Missouri. And that includes “a lot of patients from the Northland,” she said during the May 1 press conference.

But many small hospitals like Liberty say merging is a necessity. In simple terms, hospitals’ costs have gone up far quicker than the reimbursements they get from government and private insurers.

Industry experts agree that the picture isn’t improving.

A May report from the American Hospital Association blames a number of factors for the difficult financial situation many hospitals face.

After the pandemic led many medical professionals to quit, hospitals are dealing with worker shortages, which drive up labor costs. The trade group says “severe fractures” in the supply chain for drugs and supplies have also led to increased costs. Meanwhile, prices are rising at a rate of 12.4%, while reimbursements from Medicare have only risen a little over 5%.

On top of that, the report said, hospitals and providers have to deal with “increasing administrative burden due to inappropriate commercial health insurer practices.”

Since COVID, hospitals have taken in more money than they’re spending. But margins remain low compared to pre-pandemic levels. And, according to a report from the research firm Kaufman Hall, many hospitals are still struggling.

The firm reported a median operating margin for hospitals it studied of just over 2% at the end of 2023, compared to a more than 3% loss at the beginning of 2022. But researchers said 40% of U.S. hospitals are still losing money.

That’s why mergers are expected to continue this year. In the first three months of the year, 20 transactions were announced, compared with 15 in the first quarter of 2023 and 12 in the first quarter of 2022.

A third of those first-quarter mergers, Kaufman Hall said, involved academic medical systems like KU taking over smaller community hospitals like Liberty.

Anu Singh, who studies mergers and acquisitions for Kaufman Hall, said academic health systems, which tend to have high patient numbers, see adding community hospitals as a way to increase capacity.

Less seriously ill patients can be shifted to the community beds, leaving more room for the academic institution to take complicated cases.

Meanwhile, the community hospitals gain access to things like clinical research trials and more specialized services.

But community hospitals also need bigger owners because they struggle finding workers.

“From a hospital perspective,” Singh said, “the lingering effects of COVID are still in place.”

Often larger hospitals have an easier time adjusting to those challenges, he said, because they may be able to shift more patients to telehealth appointments. That helps them recruit nurses or doctors who prefer not to work in hospitals. But smaller hospitals may not have the ability to pivot.

“The cost and the know-how associated with that is so much higher,” Singh said.

Merging also helps smaller hospitals bear the risks associated with how insurance reimbursements are increasingly being determined. Hospitals may get a bigger payment for positive patient outcomes, but have money taken away for negative outcomes. By pooling with a larger system, Liberty cut that danger.

“Just like anybody that takes a risk,” Garmon said, “you want to spread that risk around. And you spread that risk around better if you’re bigger.”

This story was originally published by The Beacon, a fellow member of the KC Media Collective.

Suzanne King Raney is The Kansas City Beacon's health reporter. During her newspaper career, she has covered education, local government and business. At The Kansas City Star and the Kansas City Business Journal she wrote about the telecommunications industry. Email her at suzanne@thebeacon.media.
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