While experts have raised plenty of concerns about provider consolidation driving up costs, a new report commissioned by the American Hospital Association (AHA) released Wednesday concluded—again—the opposite is true.
The report, which was conducted by economists at Boston-based consulting firm Charles River Associates, says data between 2015 and 2017 actually show hospital mergers helped reduce costs and improve quality.
There are plenty of reasons for that trend, they said: Mergers increase scale, improve care coordination, reduce capital costs and improve clinical standardization.
"The bottom line is, when we talk about mergers and consolidation, people are doing it for a variety of reasons," said AHA President and CEO Rick Pollack on a call with reporters Wednesday.
"It's about improving quality to reduce readmissions and mortality," he said. "It's about providing access—both in preserving hospitals that might go bankrupt if it wasn't for a system coming into rescue them, or providing more sophisticated care than a system can provide. It's about capital for IT and analytics that people couldn't get on their own."
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The two-part analysis—which was both a quantitative look at the data as well as a qualitative examination based on health system leader interviews—was an update to a 2016 report on the impact of hospital acquisitions. They said it is the second time they've found cost reductions in the wake of mergers.
The quantitative analysis found mergers were associated with:
- A 2.3% reduction in annual operating expense per adjusted admission
- A 3.5% drop in revenues per admission at acquired hospitals compared to non-merging hospitals
- A drop in average annual operating expenses of acquired hospitals to approximately $271 million, implying an acquisition-related savings of $6.2 million per year
- A 1.1% improvement in 30-day readmission rates for heart attacks and a 1.7% decrease in the mortality rate for pneumonia
Meanwhile, interviews with health system executives found:
Savings from scale. Systems experienced savings of about 1.5% to 3.5% of total expenses through cost-reduction benefits of scale following mergers. For instance, one interviewee indicated a health system that doubled in size from $5 billion to $10 billion in annual revenues could see per-patient IT costs decline by 30%. Another said they saw savings of $2,000 per colorectal surgery case after implementing a data-based protocol.Reorganization of services. Following acquisitions, officials said there was typically little service consolidation and instead said the breadth of services available at acquired hospitals "often expands" at community hospitals. For instance, health system leaders said acquired hospitals that were in a downward spiral as patient volumes declined required substantial capital investments to reverse those trends. One system reported Leapfrog quality scores increased from C to B following recent acquisitions of independent hospitals, and another reported lower sepsis incidence and deaths after implementation of systemwide, data-driven protocols. Vertical affiliations. System leaders discussed a heightened focus on vertical acquisitions and affiliations over the continuum of services as they prepare to take on financial risk for the total cost of care for patients. For example, a health system indicated it invested in urgent care centers in its service areas because most patients tend to use urgent care centers a few miles from their homes. Several system leaders indicated they are paying more attention to entities they have not traditionally viewed as competitors, such as the newly combined CVS-Aetna.RELATED: Study links physician consolidation with higher healthcare costs in California The report comes at a time when mergers and acquisitions among hospitals and provider groups have been growing and a number of critiques have blamed rising costs on the consolidation . A study published in Health Affairs earlier this year found hospital-based care prices were growing "substantially faster" than physician prices.
In 2018, research from the University of California, Berkeley and the RAND Corporation found provider consolidation in California was associated with a 7% to 12% increase in exchange premiums.
A Behind the Numbers report from the PwC Health Research Institute found costs would continue to rise by about 6% in 2019 , attributing the growth to the industry's "merger-mania."
In response to reporters raising further questions about consolidation's impact on price, Pollack pointed to the payer market's role in price inflation.
"When we talk about concentration and price, what's really important to recognize is that 73% of health insurance markets are highly concentrated," Pollack said. "If you're talking about concentration, it's really among health insurers."
