Hospital mergers are good for patients, hospital study argues

Will consolidation change the industry?

Your blueprint for merger strategy

Consolidation in the hospital industry—where mergers and acquisitions are increasingly commonplace—benefits patients and enhances access to care, according to a Federation of American Hospitals (FAH) study released last week.

For the study, researchers from the Center for Healthcare Economics and Policy reviewed 75 studies—conducted from 1996 to 2013—and 36 primary sources on hospital realignment and consolidation. The researchers concluded that consolidation:

  • Enhances patient access. Researchers argued that mergers preserve access for communities that otherwise might have their access reduced or eliminated through hospital downsizing or closure. Such changes can potentially lead to negative effects on the welfare of the community and even mortality rates, they noted.

  • Improves efficiency of care. Consolidation improved operating efficiency, lowered administration and overhead costs, and reduced redundant services, researchers found.

  • Increases value of hospitals. Facilities improved the quality of their care and therefore, access to capital. When hospitals have more access to capital, they can make investments such as upgrading technology, facilities, or services, researchers suggested.

In favor of mergers

"Only the larger institutions with integrated services can meet the tremendous accountability that's required by hospitals today by Medicare, Medicaid, and private payers," says FAH President and CEO Chip Kahn, adding that the new atmosphere "takes capital and concentration…the freestanding hospital is just going to have a hard time sustaining itself in that environment."

Has the ACA triggered a wave of hospital mergers?

The report may be welcome news for supporters of hospital consolidation—especially proponents of the proposed Boston-based Partners HealthCare's acquisition of South Shore Hospital in Weymouth. State regulators are weighing whether to block the bid and have advised state Attorney General Martha Coakley's (D) office to review the South Shore takeover. And regulators against the acquisition have plenty of research to support their position, according to the Boston Globe.

The case against mergers

However, a 2012 report by the National Bureau of Economic Research found that when "hospitals and providers are competing against one another and they merge, it allows them to eliminate competition, and it drives up prices." Moreover, "If insurers have two or three dominant systems in their networks, they may not need the community hospitals, and those hospitals could get squeezed out."

NYT: How the 'wave' of hospital mergers will affect the market

The report echoes what a Health Policy Commission study found when it analyzed the proposed Partners/South Shore merger: The consolidation would raise costs and restrict competition with a nearby physicians group, Harbor Medical Associates (Weisman, Boston Globe, 1/23; Sullivan, Fierce Healthcare, 1/24).

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