Hospital mergers drive up hospital costs

The executive director of a major healthcare reform organization claims that mergers between hospitals and hospital systems only serve to drive up costs.

Suzanne F. Delbanco of the Catalyst For Payment Reform noted in a Wall Street Journal opinion piece earlier this week that her organization's research indicated that mergers within the hospital industry drove up prices 3 percent in recent years.

"That may sound small, but 3 percent of the almost $900 billion the U.S. spends on hospital care each year is a hefty chunk of change," Delbanco wrote.

Delbanco also noted that some hospital systems raised their prices as much as 50 percent after a merger. Such was the case in California with Summit Health and Alta Bates Medical Center, two Bay Area facilities that merged in the late 1990s. Citing data from the Federal Trade Commission, Delbanco concluded that prices rose at the two hospitals as much as 44 percent.

Other research also tends to back up the "bigger is costlier" argument. A 2012 study in Health Affairs concluded that merged hospitals use their larger size and therefore increased market clout to boost prices. And many hospitals looked for partners that offered specialty services specifically so they could charge more.

Delbanco rejected one argument that is fairly common on the hospital side--that they must consolidate in order to achieve economies of scale and cut costs. "When mergers happen in already concentrated markets, price increases can exceed 20 percent," she wrote. "In fact, there is evidence to suggest that providers can deliver well-coordinated, high-quality care without consolidating," she added, citing the intensive outpatient care program as an example.

"The advice we give employers and other healthcare purchasers navigating this changing provider landscape is: Proceed with caution," Delbanco concluded. "Employers will have to ensure that healthcare providers don't lean on exclusive contracts among themselves to stifle competition."

To learn more:
- read the Wall Street Journal opinion piece