Weighing consolidation’s role in quality, costs
Whether for scale or survival, consolidation continues to be a tool for hospitals looking to curb the pressure of increasing costs and lower reimbursement. In fact, the wave of mergers, acquisitions and increasingly creative partnerships is not expected to subside.
According to the 2016 Health Care Services Acquisition report, the pace of provider consolidation has grown 14% on average in the last seven years and most experts agree that’s not likely to stop anytime soon.
The federal government has been just as busy rejecting some of the bigger deals. Between 2006 and 2014, the Federal Trade Commission and the U.S. Justice Department fought against 340 mergers or acquisitions. Their reason? Big mergers stifle competition, negatively affecting consumers. That’s the opposite of what our partners at Truven Health Analytics, IBM Watson Health have found—albeit, in some cases, as Modern Healthcare reporter Maria Castellucci notes.
Economists and patient advocates support the Justice Department’s reasoning.
In studies that were published and released in recent months, major healthcare mergers led to the industry taking a beating for lower quality outcomes and higher costs. Glenn Melnick at the University of Southern California’s Schaeffer Center for Health Policy & Economics analyzed Blue Shield of California payments and found that from 2004 to 2013, the average price for hospital admissions in California increased 70%, from $9,183 to $15,642. The jump was even higher for the state’s biggest hospital chains, where the price for average admissions grew from $9,183 to $19,606, or 113%. California is home to such giants as Sutter Health and Dignity Health that have boomed through acquisitions.
A white paper by researchers at the Center for Health Policy at the Brookings Institution and Carnegie Mellon University’s Heinz College states the consolidation trend had effectively killed competition and the result is rising healthcare costs, wide variations in cost and uneven quality of care.
With fewer competitors, hospitals can strong-arm insurers into lower prices, the researchers said. They offered examples in which hospitals with fewer than four local competitors had prices nearly 16% higher on average—a difference of nearly $2,000 per admission.
As for quality, less competition can lead to worse patient outcomes, especially when prices are set by regulators, as in the Medicare program, according to the paper. Medicare beneficiaries who experienced a heart attack had a 1.46 percentage point higher chance of dying within one year of treatment if they were treated by a hospital that faced few potential competitors, research shows. But Truven’s research and our reporting shows there are outliers and lessons to be learned from them. Read on to learn more.