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Analysis

Hospitals Claim Their Mergers Reduce Costs, Disputing Other Studies

By Steven Porter  
   September 05, 2019

A report commissioned by the American Hospital Association purports to demonstrate the benefits healthcare consolidation brings to patients.

Displeased with the numerous studies that have shown mergers among healthcare providers tend to lead to higher costs, the American Hospital Association released its own report Wednesday to defend the rapid consolidation in which its members have participated.

The report, which updates a previous iteration that AHA released in 2017 with similar findings, includes information derived from interviews with hand-picked leaders from health systems that have participated in some form of acquisition or affiliation. It also analyzes the financial impacts of hospital mergers, which AHA President and CEO Rick Pollack said are a valuable tool as the industry metamorphosizes.

"Mergers have become one of the critical means through which hospitals can provide their communities with high-quality, convenient and cost-effective care," Pollack said in a statement. "The benefits of mergers allow hospitals to create connected networks of care and keep the focus where it belongs: on improving care for the patient."

The report says hospital acquisitions benefit patients by leading to "better care at reduced cost." Rather than directly studying the cost shouldered by patients and payers, however, the report used changes in hospital revenue as a proxy. Revenues per admission at acquired hospitals fell a statistically significant 3.5% compared to non-merging hospitals, according to the report. "These results suggest that savings that accrue to merging hospitals are passed on to patients and their health plans," the report's executive summary states.

The report also found that hospital acquisitions reduced annual operating expenses by a statistically significant 2.3% at acquired hospitals and improved key quality metrics on readmissions and mortality.

Hospital mergers are about efficiency, not market power, Pollack said.

A group of academics who hosted their own webinar Wednesday after the AHA's report was released, however, pointed to several studies that affirm conventional wisdom: that consolidation leads to greater negotiating leverage and that post-merger entities use that leverage to their financial advantage.

Leemore Dafny, PhD, a professor of business administration at the Harvard Business School and former deputy director of healthcare and antitrust in the Bureau of Economics at the Federal Trade Commission, cited her research during the webinar that shows health systems in separate metropolitan areas tend to raise prices when they merge.

Zack Cooper, an associate professor of public health and economics at Yale University, cited his research based on commercial insurance claims data as showing that hospitals facing less competition demand higher prices and contracts that favor them. He also pointed to research published last year by RAND Corp.

Not all healthcare consolidation is necessarily bad, but regulators should rigorously review proposed transactions on a case-by-case basis, the academics argued.

Related: House Subcommittee Takes Dim View of Healthcare Consolidation

Related: Healthcare Industry Most Focused on Consolidation, Consumerism in 2019

Related: Why Some View Healthcare's Vertical Mergers as Good and Necessary

Editor's note: This story has been updated to clarify the citations to research mentioned by Zack Cooper.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The hospitals' report argues that mergers lead to better healthcare and lower costs for patients.

Independent research has shown that mergers tend to lead to greater leverage and higher prices.


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