With mergers, could hospitals become 'too big to fail?'

Researchers urge FTC to scrutinize deals

See the Advisory Board's take on this story.

An increasing number of hospital mergers could create systems that are inefficient, unwieldy, and even depend on government bailouts, researchers from Johns Hopkins University argue in a new commentary published in JAMA.

Hospital consolidation has spiked over the past five years, with the 95 hospital mergers in 2014 representing the most since 2000, the researchers note. And they cite research predicting that about 20% of all U.S. hospitals will pursue a merger in the next five years. 

Plus, they argue that the health care market is already concentrated in some areas, referencing a 2013 JAMA study that found none of the 306 hospital referral regions in the United States was "highly competitive," while about half were "highly concentrated."

Potential for 'too big to fail'

The researchers express concern that hospital mergers could have negative effects, particularly if hospitals struggle financially.

They write that mergers could lead to systems that are "too big to fail." They say that if "a large hospital system with regional monopoly power fails, the population's health would likely worsen, and the people in the region may even have to pay for a bailout of the hospital system," adding that there is even more potential for harm to rural populations.

Other concerns, potential benefits

The researchers also worry that mergers could create hospital monopolies that would result in higher costs, reduced quality, and reduced access to care. They urge the Federal Trade Commission to give particularly robust scrutiny to mergers that could lead to a region having one dominant hospital system.

Hospital mergers are good for patients, hospital study argues

Marty Makary, a professor of surgery at Johns Hopkins School of Medicine and lead author of the commentary, says that he is not opposed to mergers, so long as competition remains within a geographic region. "There are no pricing concerns when you have mass consolidation of a system competing with another system," he tells HealthLeaders Media.

And Makary notes that the effects of hospital mergers can vary based on systems' approaches.

"One road is where they apply best practices and improve quality across the board and create a tide that raises all boats in their system," he says. But systems that have a disconnect between management and frontline staff can struggle to see those same improvements, Makary adds.

Makary also argues that hospitals do not need to merge to address population health and integrated care. Rather, he says hospitals could pursue clinical integration to coordinate care across providers, "where affiliations can allow expertise, consultations, and referrals to connect the most appropriate doctors and facilities with the patients who need ... specialized care" (Commins, HealthLeaders Media, 8/19; McDaniels, Baltimore Sun, 8/19; Johns Hopkins Medicine release, 8/17).

The Advisory Board's take

Ben Umansky, Health Care Advisory Board

It’s not just the FTC who will be taking a close look at hospital consolidation. There are signs that the market itself isn’t rewarding pure scale the way it once did. The retailization of health care and the popularity of high-deductible, narrow-network plans on insurance exchanges point to a much more price-sensitive environment. That means health systems that only use their size to drive prices up instead of generating efficiencies and keeping prices low will be at a disadvantage.

Consolidation can yield real value to the market—but only when systems put in the hard work to reduce unwarranted variation, reshape facility footprints, and rationalize service portfolios. What will distinguish successful health care systems will not be size, but “systemness”—the ability and willingness to work with common purpose and coordinated effort.  

M&A—To What End? Five Characteristics of Intentional Strategy

We are in the midst of the most significant period of provider consolidation in the last 30 years.

The most successful M&A deals are focused on delivering a better product to patients and purchasers, rather than insulating the system from competition. Find out what separates these deals from the rest.

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