All across America, hospitals are merging. In 2014 alone, there were 95 mergers, acquisitions, and joint ventures among U.S. hospitals, down only slightly from 98 in 2013. What is fueling this strong trend toward hospital consolidation — and more importantly, why should you, as a consumer of health care, be concerned about it?
Like many stories, there are two sides to this one.
Hospital administrators who create the mergers tell one side of the story. They believe that hospital consolidation improves efficiency, access to care, and quality of care, and may lower costs because in theory, the more care a hospital provides, the more efficient and less expensive it should become. For example, when a smaller hospital merges with a larger, better-equipped hospital system, patients at the smaller hospital may acquire better access to specialists and to advanced medical technologies, such as high tech imaging procedures and electronic medical record systems.
From this point of view, consolidation seems like a positive trend that will offer benefits to consumers.
But the story doesn’t end there. In contrast to hospital administrators, many health economists are wary about the growing number of hospital mergers. When individual hospitals merge into larger systems, they gain a larger share of the consumer health market. That puts them in a position to ask health insurance companies to pay more for medical care and procedures. These higher prices are not borne by the insurers, but by consumers in the form of greater premiums. Thus, some economists argue, mergers drive up health care costs and place added financial pressure on consumers.
A recent example is discussed in an article published today in The New England Journal of Medicine. Partners HealthCare, comprising Massachusetts General Hospital and Brigham & Women’s Hospital (both in Boston), along with 12 other health care organizations, is the dominant health care system in eastern Massachusetts. Partners wanted to expand further by acquiring three additional hospitals in their region. The Massachusetts Health Policy Commission, an independent state agency aimed at reducing health care costs and improving quality, voiced opposition to these acquisitions on the grounds that they would drive up health care costs in the state.
The state’s attorney general, Martha Coakley, sued Partners in an attempt to contain the plan, but eventually settled the case when Partners agreed to certain price and cost-growth restrictions.
But the deal also had to be reviewed in state court, and Superior Court Judge Janet Sanders decided to strike down the settlement because of her fear that the consolidation plan would reduce competition and drive up prices for consumers.
Dr. Kenneth Davis, the CEO and president of Mount Sinai Health System in New York, had a different perspective. In a recent article in the Wall Street Journal, Dr. Davis wrote, “The fear that mergers curtail competition, leading to higher prices for medical care, reflects an old way of thinking. Thanks to cataclysmic changes in the delivery of health care, hospital mergers now offer the potential for higher quality and more efficiency.”
But Leemore Dafny, a professor at the Kellogg School of Management at Northwestern University, sees things differently. She wrote, “What is wrong is that too much market power is concentrated in the hands of too few large providers. I’d be interested in learning more about how attorneys general can promote competition.”
From the standpoint of consumers, hospital mergers may offer expanded access to health care services, but this may very well come at a cost — higher prices for those services and higher insurance premiums. So if a hospital merger happens in your area, be aware of what might be coming down the road.