New report provides clarity on hospital mergers, acquisitions

January 12th, 2015

Private insurers haven’t been the only ones objecting to the rise in hospital mergers and the acquisition of physician practices, but they’ve probably been the most vocal. It’s understandable – larger systems mean more negotiating power for hospitals, and it isn’t hard to imagine why health plans might oppose to that particular development. Meanwhile, some consumer groups and state government officials have raised a fuss over facility fees that have kicked in after certain hospitals bought up physician practices and outpatient clinics.

Late last year, America’s Health Insurance Plans (AHIP) released an infographic suggesting that “when hospitals consolidate, either by merging with other hospitals or buying up physician practices, health care costs go up. Provider consolidation gives hospitals greater negotiating strength and limits competition, resulting in higher prices for services, higher costs for patients, and no improvement in the quality of care delivered.”

A couple of days ago, the American Hospital Association (AHA) weighed in by releasing the results of report it conducted with the Center for Healthcare Economics and Policy, rebutting some of the arguments against hospital mergers and acquisitions. According to the report, “What the facts show is that over the past six years, hospitals have responded to private second and government incentives to provide higher quality and more efficient health care by, among other strategies, partnering with others.”

The report stresses that only about 10% of community hospitals (551 in total) have been involved in a merger, and that “the average number of hospitals acquired in a given transaction was between one and two.” Further, all but 20 of the hospitals involved were in “areas where there were more than 5 independent hospitals. That means there were plenty of hospitals left following the transaction to maintain a competitive marketplace.” Most of the other twenty hospitals were in pretty bad financial shape and might not have been able to stay open if they hadn’t merged, the report contends.

All of this is interesting, but it’s still too early to draw any firm conclusions about whether increased consolidation will ultimately lead to better patient outcomes and lower costs, or whether less competition will lead to complacency on the part of hospitals. We’re still in the middle of this process, and it could still go either way, depending on how these mergers and acquisitions are handled, how effectively they’re regulated, and what financial incentives are in place to reward high quality.

The pace of hospital mergers and acquisitions isn’t likely to slow anytime soon. That battle’s over. The issue now is, how do we manage the process responsibly and to the benefit of health care consumers?