Hospital Federation: No Link Between Consolidation, High Prices

Refuting "conventional wisdom" and citing slowing healthcare cost growth, the Federation of American Hospitals says healthcare industry consolidation improves services and care coordination, and ensures continued access to care.

A Federation of American Hospitals-commissioned report claims, not surprisingly, that hospital consolidation improves care quality and access and that the critics who claim these "hospital realignments" drive up healthcare costs are relying on old data that does not consider the sweeping effects of healthcare reform.

"Consolidation has probably always been a good thing, but in terms of today, it actually is the mother of necessity," says Chip Kahn, president/CEO of FAH, the Washington, DC-based group representing investor-owned and managed community hospitals and health systems.

"The expectations of consumers and patients, the revenue pressures to have enough resources for hospitals, the accountability and technological requirements and obligations that hospitals have today, and the expectation that we are going to be moving toward really taking care of the patients over a continuum of care change the dynamic."

The FAH report—Hospital Realignment: Mergers Offer Significant Patient and Community Benefits—in itself provides no new data on the topic. Instead, the report cites a number of previous studies in an attempt to refute "conventional wisdom" that hospital consolidations result in higher healthcare costs.

"All too frequently, conventional wisdom suggested by media coverage is that hospital realignment, mergers and consolidations systematically result in pricing power, with anti-competitively higher prices for those needing care," the report states.

"Yet, in terms of prices for consumers, this study's extensive review of the literature finds no consistent statistical relationship between consolidation patterns and hospital prices across the studies. What also can get lost is that these claims about hospital merger effects often rely on outdated data that do not reflect today's dynamic market conditions."

Instead, the FAH report says consolidation improves services and care coordination, and ensures continued access to care that is not disrupted by financial straits that threaten to shutter hospitals that go it alone.

Also not surprisingly, America's Health Insurance Plans begs to differ.

"The evidence shows that increasing provider consolidations results in higher prices for consumers," says AHIP spokeswoman Clare Krusing. "The rhetoric about provider consolidation is that there is greater efficiency, but there is government data and research that shows the reality is higher prices for consumers. The rhetoric is efficiencies but the reality is higher prices."

"AHIP is missing the point," Kahn said. "You have to look at the big picture. All they are focusing on is simply their payment for the covered lives in their insurance book's business. They are not really concerned, I don't think, about the access of those people to hospital care," he added.

If hospitals are going to be available for all Americans, then we have to be honest with ourselves that Medicaid and Medicare and maybe even the plans that are coming in under the new exchanges are not paying sufficiently and are putting pressures on hospital revenues to such an extent that consolidation and hospitals needing to right-size is where we are going."

"The other side is if you go to the AHIP blog, most of the research that they base their conclusions on is old, based on data from the 1990s or the turn of the century. The environment then is not what the environment is today."

Krusing says AHIP cites a number of reports from independent sources that have been written in the past two or three years, all of which support the payers' claims that consolidation drives cost growth.

"I'm looking at something from PwC that came out in 2013 and it shows hospital merger and acquisition activity [PDF] has increased nearly 50% since 2009, reaching its highest point in 10 years," she says. "Even that report highlighted that the result of this trend of consolidation there are higher prices. This is a trend that continues. The research continues to show this. What is most striking is when you see what is happening across the country and there are tons of articles that actually show within the last year to 18 months that when patients go to these provider groups, their prices are increasing."

Kahn counters that the arguments about consolidation driving cost growth loses some steam with the news that healthcare cost growth has slowed to record lows. "It's probably the economy, but consistently economists and government officials and other studies are showing that a structural change is taking place," he says.

"Hospital services are paid for through this tremendous hydraulic that is Medicaid and Medicare payments, no payment, and then various types of private payment," he says.

"As far as we are concerned and as far as our study illustrates, to keep this hydraulic greased so that there are enough resources to provide the access that people expect and the quality that people expect, the freestanding hospital can't make it. You need to look at the big picture of hospital survival and the availability of hospitals. That is the point we are trying to make," Kahn said.