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Analysis

AHA Survey Shows Hospital Mergers Decrease Costs

By John Commins  
   December 26, 2018

However, critics note the survey of hospital executives does not necessarily show that savings generated by mergers are passed on to healthcare consumers.

As state and federal regulators take a harder look at hospital mergers, an American Hospital Association-sponsored study suggests that in-market consolidations decrease costs and expand patient services.

The survey, In Hospital Mergers: Foundation for a Modern, Efficient and High-Performing Health Care System of the Future, is an update from a 2017 survey that interviewed health system executives on the benefits of mergers and acquisitions, and examined data on the impact on costs and quality.

The report comes as the AHA levelled criticism against the Federal Trade Commission for a hospital merger review process that AHA said was "overbroad" and "does not properly credit the many pro-consumer benefits of hospital transactions, and ignores key realities of the marketplace."

The newly extended survey—conducted by Charles River Associates—found that mergers of hospitals within 30 miles of each other generated savings of more than $6.6 million in annual operating expenses at acquired hospitals.

"These findings are important because antitrust authorities and some researchers have suggested that mergers involving hospitals in closer proximity can raise particular competitive issues," the survey found.

"Data demonstrating that there are somewhat greater cost savings from such mergers, no increase in revenues and some evidence of quality improvements underscore the procompetitive potential of such mergers and their likely benefits for patients," the survey said.

Matt Schmitt, an assistant professor of strategy at UCLA, whose research was cited in the Charles River report, says the findings are true, to an extent.

"My own research and that of CRA suggests that the average hospital merger reduces costs. That said, there is likely substantial heterogeneity across mergers," Schmitt said in an email to HealthLeaders.

"Some mergers likely reduce costs by quite a bit, whereas others have no effect (or even increase costs). I believe that it is unwise to apply the results of these aggregate studies to individual mergers: in my view, case-by-case analysis is necessary," he said.

Schmitt says it's "much less apparent" if merger savings trickle down to consumers in the form of lower healthcare prices.

"There are two steps here. First, whether those savings trickle down to insurers in the form of lower negotiated rates," he said. "Second, whether those lower negotiated rates trickle down to consumers in the form of lower premiums and/or more generous benefits."

Schmitt said the CRA report's attempt to examine revenue per admission "is very rough."

"For example, it includes Medicare and Medicaid, when negotiated rates between hospitals and commercial insurers is what we really want to see," he said. "Unfortunately, given the proprietary nature of hospital/insurer negotiations, it is not easy to get access to good data on those rates."

Schmitt said one study published in May found higher post-merger prices when the merging hospitals are geographically close.

"Overall, the jury remains out with respect to whether hospital mergers benefit consumers, both financially and perhaps more importantly with respect to the quality of care," Schmitt said.

“These findings are important because antitrust authorities and some researchers have suggested that mergers involving hospitals in closer proximity can raise particular competitive issues.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

An updated survey for AHA found that mergers of hospitals within 30 miles of each other generated savings of more than $6.6 million in annual operating expenses at acquired hospitals.

That may be true, critics contend, but it's difficult to determine if healthcare consumers are seeing lower prices because of it.


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