Perspective: New research confirms that hospital mergers reduce costs and enhance quality of care

Health care is experiencing unprecedented change: the field is shifting to value-based care; new players are entering the health care field; and patients want services to be provided in a more convenient manner where providers meet them where they need care … whether it is at home, work, school or in the neighborhood.
 
In the midst of all this change, America’s hospitals and health systems are working to shape the future … and changing to meet patients’ needs.
 
This includes using every tool available, such as partnering directly with local employers and other community organizations to provide care; changing how they deliver health services by creating organized networks of caring that provide expanded access with a more patient-centered focus; and investing in new technologies to manage data and improve quality.
 
One strategy — hospital mergers — and creating “system-ness” is sometimes misunderstood as being motivated to gain leverage to increase prices. Such claims are clearly off base. When 73% of health care markets experience high insurer concentration, and 43% have one insurer who has 50% of those markets … it’s fair to ask who really has the negotiating leverage? Over half of an average hospital’s revenues are at rates set by the government under Medicare and Medicaid … which do not cover the costs of caring. Yet hospital prices are rising at historic lows — and roughly half that of commercial insurance premiums … and recent government data shows this disparity is accelerating. With insurers making record profits and continuing to raise premiums, that industry’s professed commitment to affordability is hardly credible.
 
For hospitals and health systems, merging and building systems are one way to increase scale to manage risk as the field moves toward value-based care. Mergers are a strategy to reduce costs by employing standardization to reduce clinical variation, and to create efficiencies by reducing administrative and supply chain costs. Moreover, they provide increased access, particularly in vulnerable rural and urban areas. And, they make it easier to raise capital to fund expensive information technology systems that can provide data to improve the quality of care.
 
How do we know this?
 
We did our homework. This week, the AHA and economists at Charles River Associates released updated research affirming all of the above … while also providing empirical evidence to support these realities.
 
This report — Hospital Merger Benefits: Views from Hospital Leaders and Econometric Analysis — analyzes an expanded set of data on the cost, quality and revenue outcomes from hospital transactions between 2009 and 2017. This analysis compares cost per admission, revenue per admission and inpatient quality measures.
 
We found that acquired hospitals saw a 2.3% reduction in operating expense per admission. We found that an acquisition is associated with a decrease of 3.5% in net patient revenue per adjusted admission … suggesting the savings are passed on to patients and their health plans. And we found that mergers lead to a decrease in both readmissions and mortality for patients. These findings are all consistent with our past analysis of mergers.
 
The empirical analysis was supplemented by structured interviews with hospital leaders to shed light on both the motivating factors behind mergers and the areas in which mergers and acquisitions have eased cost pressures and expanded access to care. And, the report fills a much-needed gap in the dialogue by offering comprehensive data and insight into what is happening in the field.
 
The bottom line: This study shows that mergers aren’t about market power … they are about innovation, improving access, enhancing quality and creating efficiencies. And they are just one way America’s hospitals and health systems are working to benefit patients … and advance health in America.

You can find more resources about the benefits of mergers on AHA’s website.