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Do Hospital Consolidations Lower Prices? (Spoiler Alert: No.)

This week, JLF’s Jordan Roberts published a research brief on hospital consolidation. Recently, the American Hospital Association released a study on hospital consolidation. According to Roberts:

The new study builds on a report from 2017 that showed that hospital consolidation decreased costs and increased quality for patients. The researchers used hard data and interviews with leaders of health systems to draw these conclusions. In particular, the newly released study found that:

  • Hospital acquisitions were associated with a 2.3 percent reduction in annual operating expenses at acquired hospitals
  • Significant reductions in rates of readmission and mortality
  • Revenues per admission at acquired hospitals reduced by 3.5 percent which the authors say is a result of merging hospitals passing on savings to patients and health plans
  • An interview with one system leader indicated that if a health system doubled in size from $5 billion to $10 billion, per-patient IT costs would decline by 30 percent.

Roberts notes, however, that this industry-funded study is “squarely at odds” with the abundance of research that preceded it.

Roberts details the reports that came before the American Hospital Association Study:

  • [Y]early mergers and acquisitions have been up since the recovery following the Great Recession. A report by PricewaterhouseCoopers Health Research Institute found that costs were projected to rise by about 6 percent in 2020, attributable primarily to the industry’s “merger-mania” mindset.
  • Before the ACA’s implementation, researchers conducted studies which showed that hospital concentration resulted in price increases.
  • A study conducted by researchers at UC Berkeley for the New York Times examined 25 metropolitan areas with the highest rate of consolidation from 2010 and 2013 and found that prices in most areas increased between 11 and 54 percent.
  • A 2018 study titled, “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured” found hospital monopoly market power is positively associated with costs. In areas where a hospital has a monopoly hold on the market, prices are 12 percent higher compared to markets where there are four or more hospitals.
  • This study from researchers at the Kellogg School of Northwestern University found between 2007 and 2013, a hospital acquires physician practices, services increased by an average of 14 percent.

Roberts concludes:

While the American Hospital Association continues to back its members’ recent activity of consolidation, a handful of research shows the opposite of what they claim is true. Hospital mergers and acquisitions have been increasing steadily in the past decade and are increasing the market share of large hospital systems. Further, when monopoly power is high, prices are free to rise without having to respond.  Patients and taxpayers are the ones that pay the price. To combat this phenomenon, we should reevaluate our approach to hospital mega-mergers, remove state and federal laws that encourage consolidation and monopolistic behavior, and promote competition.

Read the full brief here. Learn more about hospital mergers here.

Brenee Goforth / Marketing and Communications Associate

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