Paper 'throws cold water' on cross-market theory of hospital merger effects

A new paper throws cold water on an untested theory about the impact hospital realignment has on competition when the combining hospitals are far apart. The paper points out at least half a dozen possible flaws in the new theory ranging from fuzzy geographic markets to the lack of credit the authors give to increases in consumer value from realignment. The paper notes, “It is common for [hospital] systems to invest significantly to improve quality at newly acquired hospitals.”

Among the flaws identified in the paper:

• Geographic markets that are too narrowly defined.
• Increased value of hospitals in the same system being driven by beneficial efficiencies, increased capital investments and quality improvements at newly acquired hospitals.
• Lack of recognition that health plans, many with significant market power, can replace hospitals that are not providing value.
• Conclusions based on such highly aggregated data that price differences are obscured.

Despite the policymakers’ enthusiasm for new theories, this one has a long, long way to go before it ever holds any water.