However, the revenue gains are mostly due to price increases and a reduction in staff, a study finds.
Being acquired by a health system can be a fruitful outcome for independent hospitals, but often comes with sacrifices to realize improved profitability.
Specifically, acquired hospitals increased profitability by around $14 million per year, largely driven by cutting nonclinical staff and passing on increased prices to consumers, according to a study published in the Journal of Political Economy Microeconomics.
Researchers at the University of Pennsylvania’s Leonard Davis Institute of Health Economics analyzed 101 hospital acquisitions from 2013 to 2017 for independent and system-owned hospitals to estimate the conditions under acquisitions.
Though acquired hospitals were more profitable, much of their net gain stemmed from cutting expenses. Of the $11.2 million in annual reduced expenses, 60% were from eliminating jobs mainly in administrative, maintenance and supply, medical records, and pharmacy departments.
The efficiency boost was also only a one-time gain, with system-owned hospitals not showing any further reductions in operating costs after being acquired by a different system.
In addition to slashing jobs, acquired hospitals also raised prices to generate profit. Average inpatient prices after acquisition increased by up to 11%, with prices per hospital stay jumping $856 on average.
The study attempted to investigate the impact of acquisitions on quality, but only one of three measures—readmissions, mortality, and patient satisfaction—showed noteworthy change. Acquired hospitals higher 90-day readmission for commercially insurance cardiac care patients, pointing to quality suffering following corporatization.
“Increases in 90-day readmissions after corporatization signal the potential for reduced quality,” researchers wrote. “A possible mechanism is staff reductions, which could affect support services known to reduce readmissions such as coordinating, tracking, and following up on post-discharge patients.”
As hospitals pursue M&A to improve financial viability, patients are often disadvantaged. However, the study revealed that hospitals aren’t as incentivized to be acquired after the first time, meaning consolidation can have diminishing returns.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Independent hospitals experience profitability gains of around $14 million per year after being acquired by health systems, researchers at the University of Pennsylvania’s Leonard Davis Institute of Health Economics found.
To achieve those net gains, acquired hospitals raise prices and cut 60% of nonclinical jobs to realize $11.2 million in annual cost savings.
Hospitals already owned by a system and bought by another don’t show similar savings, giving them less financial incentive to be acquired.