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Hospital Consolidation leads to Higher Prices

Hospital consolidation occurs in some regions to form strong alliances with which to negotiate better payments from insurers. The ideal of consolidation leading to streamlined care and improved quality remains elusive.

The latest Robert Wood Johnson Foundation Synthesis Project discusses the topic of hospital consolidation. The synthesis serves as an update to an earlier one from 2006. This update provides information on prices, health care costs, and quality of care as might be expected in the coming years as a result of the Affordable Care Act’s push for delivery system change (e.g. accountable care organizations).

Hospital Consolidation & Prices

Several studies (set in California, Florida, Massachusetts, and the entire US) pointed to the trend that higher hospital market concentration leads to higher growth in prices. Conversely, insurer concentration, which subsequently reduces the market power of hospitals, led to lower hospital prices.

In another way of evaluating this trend, case studies assessing the effect of hospital mergers in California, North Carolina, and Illinois pointed to an increase in hospital prices (ranging from 20-44 percent) after the merger. National data also supported 40 percent higher prices among merging hospitals compared to non-merging hospitals.  The uninsured rate increased by 0.3 percentage points due to hospital mergers.

Hospital Competition & Quality

Quality outcomes have been studied in markets with different pricing structures: administered prices (like Medicare) and market-determined prices (like private insurance).

Under an administered price setting (as is the case in England’s National Health Service), competition between hospitals (i.e. less consolidation) demonstrated improved clinical outcomes for acute myocardial infarction (heart attacks). Similarly, quality metrics reporting on mortality for hip replacement and coronary artery bypass surgery demonstrated a change in demand by patients. When mortality at a particular hospital increased, demand decreased and patients migrated to higher quality facilities.

In the market-driven price situation, the evidence was mixed regarding hospital competition and quality of care. The majority of US-based studies showed that competition improved quality outcomes for angioplasty, heart attack mortality, heart failure mortality, kidney transplants, and heart surgery (coronary artery bypass graft). However, some conflicting findings from England demonstrated higher mortality in hospitals facing competition in a deregulated environment.

A study from Florida suggested more adverse patient safety events in hospitals with lower operating margins (presumably due to competition). Overall, the preponderance of the evidence suggests that competition between hospitals is good for quality in the United States unless competition has gotten so out-of-hand that the financial stability of the hospital conflicts with quality improvement strategies.

Physician & Hospital Consolidation

Consolidation of physicians with hospitals tended to occur in environments with heavy HMO penetration. This appeared to be the result of a desire to improve bargaining power with insurers. The data were not clear on whether or not this resulted in higher hospital prices. Yet, the authors of the synthesis appeared worried that the push for accountable care organizations from the Affordable Care Act might serve as a means to consolidate the hospital marketplace. If this occurs, the feared consequences could include higher prices and lower quality.

Commentary

The Robert Wood Johnson Foundation’s latest Synthesis Project adds to existing evidence that hospital consolidation and mergers lead to higher prices. From an economic stand point, this makes perfect sense. As hospitals consolidate, they are better able to leverage higher rates from  health insurers and thus derive 20 to 44 percent more revenue for certain diagnoses and procedures.

Consolidation among hospitals decreases competition and subsequently results in lower quality for many conditions despite the common thought cooperation, shared resources, and common systems might streamline care.

Many of these studies took place in the late 1990s and early 2000s. No US studies included analysis past 2005. Information technology was not widely disseminated in hospitals prior to 2005. Previous data show that less than 10 percent of American hospitals were using basic EHRs in 2009. Perhaps future research will demonstrate improved quality with hospital consolidation as electronic medical records permeate the clinical setting. Recent evidence suggests clinical decision support is cost effective and that EMRs rescue patients from error.

Gaynor, M and Town, R. “The impact of hospital consolidation – update.” RWJF Jun 2012. Synthesis Project Policy Brief No. 9.

by

Cedric Dark, MD, MPH 

About Cedric Dark, MD, MPH

Cedric Dark is Founder and Executive Editor of Policy Prescriptions®. A summa cum laude graduate of Morehouse College, where he received a B.S. in biology, Dr. Dark earned his medical degree from New York University School of Medicine. He holds a master’s degree from the Mailman School of Public Health at Columbia University. He completed his residency training at George Washington University while serving as Chief Resident in the 2009-2010 academic year. Currently, Dr. Dark is Assistant Professor in the Section of Emergency Medicine at the Baylor College of Medicine. He serves as a member of the American College of Emergency Physicians’ State Legislative and Regulatory Committee and the chair of the Texas College of Emergency Physicians' Communications Committee. Contact: Website | Facebook | Twitter | YouTube | More Posts

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