Be Skeptical When Your Hospital Expresses an Urge to Merge

Old myths die hard, and for years as hospitals continue to join forces in the name of efficiency, the refrain cited most often by individuals who steward their systems has not changed:  “do the deal and everybody wins.”

Intuitively, when a facility joins a network or bigger hospital, one would expect administrative and clinical redundancy to lessen.  As a result, a system will pass through found savings to payers and offer higher quality–as the organization sorts the clinical wheat from chaff.

This belief has become so ingrained in our collective psyche, from the hospital CEO on down, to decry otherwise would be heretical.

Nevertheless, you can find studies whose results confirm the ex-ante guarantees expressed at the outset of any of these deals—but those would be the exception.    As surprised as you might be, with all the hoopla to unite, the data to date does not deliver on the promises.  The bright lights are just not there.

Two recent reviews examine where the merger thrust has taken us.

The first paper, entitled, Is the System Really the Solution? Operating Costs in Hospital Systems, the investigators looked at operating costs as hospitals merged with systems large and small, from 1998-2010.  They found compared to freestanding facilities, operating costs are higher in members of hospital systems, in members of larger hospital systems, in members of national hospital systems, and members of decentralized hospital systems (the majority of system members).

The second paper, Integrated Delivery Networks: In Search of Benefits and Market Effects, the authors conducted an analysis of 15 of the largest IDNs in the country. They found no relationship between the degree of hospital market concentration and IDN operating profits, between the size of the IDN’s bed complement or its net collected revenues and operating profits, no difference in clinical quality or safety scores between the IDN’s flagship hospital and its major in-market competitor, higher costs of care in the IDN’s flagship hospital versus its in-market competitor, and higher costs of care when more of the flagship hospital’s revenues were at risk.

A recent article encompassing the spirit of above—short, readable, and worth your time—appeared in JAMA this year.  The concluding paragraph sums up the current state of affairs nicely:

Of course, it is possible that mergers and acquisitions of other hospitals in other areas could reduce costs and improve quality, but we should demand solid evidence of that, not promises. When a mountain of evidence, both new and old, points the other way, it is entirely reasonable to be skeptical of claims that hospital consolidation will, in general, lead to cost savings and quality improvements.

The conflicting messages emanating from on high, boosted by the ACA and the proliferation of ACO’s, can make one dizzy.  We have a lot of uncertainty today, but the myth of bigger is better should not continue to thrive.

On one hand, to survive, hospitals need EHRs, resources to employ personnel beyond the traditional roster of hospital staff, and an infrastructure to deal with regulatory pressures applied by the government and big business.  On the other, if these ends can be met absent consolidation—either through affiliation agreements or compacts—we might reap the upsides of scale, avoiding the downsides of market power and high prices.

(And the dangers of the latter are no joke.  In a turn from decades past, the FTC  has pressed several cases of hospital overreach the last few years—and prevailed.)

These findings break convention and you will be well served in casting aside clichéd dogma.  Refrain from looking at your hospital’s backyard as its own monopoly board; over the next decade, many new tenants will be moving in to Park Place and charging rent at Boardwalk.  The money won’t be fake.

 

UPDATE: Another nice review on the subject.

 

Brad Flansbaum

Bradley Flansbaum, DO, MPH, MHM works for Geisinger Health System in Danville, PA in both the divisions of hospital medicine and population health. He began working as a hospitalist in 1996, at the inception of the hospital medicine movement. He is a founding member of the Society of Hospital Medicine and served as a board member and officer. He speaks nationally in promoting hospital medicine and has presented at many statewide meetings and conferences. He is also actively involved in house staff education.

Currently, he serves on the SHM Public Policy Committee and has an interest in payment policy, healthcare market competition, health disparities, cost-effectiveness analysis, and pain and palliative care. He is SHM’s delegate for the AMA House of Delegates.

Dr. Flansbaum received his undergraduate degree from Union College in Schenectady, NY and attended medical school at the New York College of Osteopathic Medicine. He completed his residency and chief residency in Internal Medicine at Long Island Jewish Medical Center in New York. He received his M.P.H. in Health Policy and Management at Columbia University.

He is a political junky, and loves to cook, stay fit, read non-fiction, listen to many genres of music, and is a resident of Danville, PA.

2 Comments

  1. Mighty Casey on May 7, 2015 at 5:06 pm

    Heavy M&A activity can wind up in “too big to fail” territory, in any industry. What could go wrong?

    The last lightning round on TBTF drained the US exchequer to the tune of $615B. If the hospital sector winds up on the same fix that the financial and automotive sectors did in ’08, I doubt the same level of bailout would be forthcoming …

  2. Casey Quinlan (@MightyCasey) on May 8, 2015 at 12:33 pm

    Hospital and health system M&A activity could wind up putting the whole sector in “too big to fail” territory. And what could go wrong there, right?

    What worries me, and other policy wonks in my zone, is that all this scaling-up only guarantees a harder fall as the hospital is forced to reinvent itself in the context of 21st century care. There are already indications that disruption in the form of “medical home” being defined as the patient’s actual home, with care delivered there, unless OR or complex real-time monitoring is required for an acute problem.

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