AHA Defends Hospital Consolidations

The volume of mergers and acquisitions in healthcare is "consistent with efforts to try to achieve economies of scale… and changes in demand and particularly to realign and enhance services," says a report from the American Hospital Association.

The American Hospital Association contends that "the overwhelming majority" of hospital consolidations are "pro-competitive," improve quality and access to healthcare at a lower cost for the communities they serve.

And despite the seemingly daily accounts of mergers and acquisitions in the hospital sector, an AHA-commissioned report from FTI Consulting found that only 551 community hospitals—about 10% of all community hospitals—were involved in consolidations from 2007-2012 with an average of one or two hospitals acquired in most transactions. The report (PDF) was published Monday.

"It's a very dynamic industry with a large range of pressures in efforts to really realign care in the best site, with the best quality and most efficient cost of care delivery," Meg Guerin-Calvert, senior managing director at FTI, told reporters at a press conference Monday.

"While it is diverse, the common theme I would point to is that many of the acquired hospitals are smaller and they are standalone[s], suggesting that this structural change is consistent with efforts to try to achieve economies of scale and scope to try to respond to excess capacity and changes in demand and particularly to realign and enhance services. It's also consistent with the fact that the vast majority of transactions that have occurred in the last six years really have not received very intense antitrust scrutiny and the vast majority have been approved."

Monday's report may have been the AHA's attempt to change the media narrative of late. The nation's hospitals have taken it on the chin in the last several weeks, starting with the mid-May disclosures by the Centers for Medicare & Medicaid Services that showed huge and seemingly inexplicable variations in what hospitals charge for the same inpatient procedures.

On Sunday, The New York Times ran a front page story comparing the significantly higher price of medical care in the United States when compared with other countries. And on Monday CMS released for the first time hospital pricing data for 30 types of hospital outpatient procedures.

The health insurance industry has long taken a dramatically different view of hospital consolidations and says several studies have shown that it drives down competition and increases the cost of care while not necessarily improving access.

"The evidence clearly demonstrates that increasing provider consolidation is leading to higher prices for medical services and higher health care costs for consumers and employers," Robert Zirkelbach, spokesman for America's Health Insurance Plans, said in an email exchange.

Melinda Hatton, AHA senior vice president and general counsel, told the media that the report was needed because "there has been a lot of misinformation about what is going on in the hospital field particularly around mergers and acquisitions. This really fills a gap."

"You hear a lot about consolidation but you don't ever really see the facts of consolidation and this sums it up in a compelling way," Hatton says. "For the last six years there have only been 20 mergers or acquisitions (in service areas) where they started with fewer than five hospitals. In every other area there were more than five hospitals and plenty of competition. We looked at the 20 hospitals… and there were real tangible benefits to having to hospitals that are relatively close together come together for the community. When you hear people talk about consolidation, you need to talk about the particular hospital transaction to determine how it benefits the community… even though the community may be losing some putative competition."

AHA Executive Vice President Rick Pollack says the movement toward hospital consolidation "is all a part of trying to transform the whole delivery system to make it more efficient and improve care to get access to capital to keep struggling entities open so they can provide access."

"Sometimes hospitals would go bankrupt if you didn't have these kinds of arrangements. Another reason they are occurring is because we need to reconfigure services to reduce overlap and duplication that is necessary to help rationalized the delivery system."

"We need to achieve economies of scale for purchasing. A big reason is people need to come together to access capital to be able to invest in new technology and upgrade facilities and buy electronic medical record systems. It's not really about pricing all the time at all."