Hospital mergers cut costs, improve quality

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Hospital mergers can reduce costs and push organizations to improve quality and service offerings, according to a new report.

Hospital mergers can reduce costs and push organizations to improve quality and service offerings, according to a new report.

The report (PDF), compiled by consulting firm Charles River Associates and funded by the American Hospital Association, found that mergers between 2009 and 2014 resulted in significant drops to operating expenses per admission. Costs per admission dropped on average by 2.5% or $5.8 million a year, according to the report.

RELATED: A look back at hospital mergers and acquisitions in 2016

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Savings in scale-related costs to the acquired hospitals were also recorded, ranging from about 5% to 10% of total operating costs. The study also found that revenue per admission decreased by nearly 4% after a merger, which flies in the face of research that ties higher hospital concentration to higher prices for payers following mergers, according to the report.

The firm conducted interviews with leaders at 20 health systems in 2016 to get a picture of their experiences with mergers before comparing that information with economic data on the mergers. Many of the executives interviewed said that the benefits of alignment cannot be realized through loose ties between organizations.

Some of the study’s participants noted (PDF) that close alignment can benefit smaller, community hospitals, as it allows larger medical centers in a system to standardize procedures while reaching out to patients where they live. 

“The key to transforming healthcare delivery is increased efficiency and quality. In some communities and for certain hospitals, consolidation may be necessary—not only to meet the current health needs of patients and communities—but also to provide a stable foundation upon which to build the healthcare system of the future,” AHA President Rick Pollack said in an announcement of the findings.

There are decidedly mixed feelings as to whether hospital mergers benefit patients. Some experts have noted that alignment can reduce disparity in care outcomes, but it can also increase patient costs. Despite concerns, healthcare “merger-mania” has not slowed down, and the number of mergers has increased by half between 2010 and 2016.