Higher care costs directly following a hospital merger have a downstream effect of local employers laying off a portion of their workers, according to a new National Bureau of Economic Research working paper.
The analysis, published Monday, outlined higher insurance premiums shouldered by employers when a nearby hospital raises its prices. Those higher payroll expenses lead employers to cut workers rather than trim wages, researchers from the University of Chicago, Yale, the University of Wisconsin, Harvard and the federal government found.
“This work highlights that healthcare price growth is generating severe macroeconomic and social consequences in the U.S.,” the researchers wrote in their working paper.
Specifically, the group found that a 1% increase in healthcare prices decreased the payroll and employment of non-healthcare employers by about 0.4%. Additionally, county-level decreases in income and increases in unemployment rates from that 1% increase led to losses for the federal government by way of 2.5% higher unemployment insurance payments and a 0.4% reduction in federal income tax revenue collection.
The impacts grew when considering a hospital price increase of 5%—a level previous research has tied to the roughly 20% of consummated hospital mergers exceeding regulators' cutoffs for highly concentrated markets. Within their sample, such a post-merger price gain is tied to $32 million of local lost wages, 203 job losses, a $6.8 million cut in federal tax revenue and—when considering prior research on job losses—one death from suicide or opioid overdose, they wrote.
The team measured the impact using data on privately insured workers from the Health Care Cost Institute (HCCI), employer premiums from the U.S. Department of Labor and income tax return filings from the Internal Revenue Service.
Middle-income workers tend to be most affected by these layoffs, they wrote, as the premiums tend to serve as a “head tax” paid out per worker rather than per dollar earned.
As such, higher earners (those earning $100,000 per year or more) felt almost no impact from the unemployment effect of increased hospital prices. On the other end, the lowest wage workers (those earning $20,000 per year or less) very rarely receive health insurance benefits from their employer and so are near-immune to the higher premiums.
The group’s analysis specifically looked at 304 horizontal hospital mergers consummated between 2010 and 2015, and compared those to prices at non-merging hospitals. On average, these mergers led to price increases of 1.2% over two years after the deal, though “this average masks substantial variation in the post-merger price increases across transactions,” researchers wrote.
The team said their analysis is designed to measure how the average price of care for employers “would have evolved over time if the only thing that had occurred were hospital mergers that raised prices, with other prices and quantities held fixed.” They also noted that HCCI, their source for insurance claims data, contains information on 28% of the country with employer-sponsored insurance coverage.
The work joins a growing body of academic evidence raising alarms on the effect of healthcare industry consolidation, particularly among providers. Though the hospital industry and those undergoing a merger often defend the deals by citing spending efficiencies and lifelines for failing hospitals, researchers argue that price increases with limited care quality improvements are the more likely outcome.
“In the absence of concrete steps to address healthcare price growth, rising health spending will raise labor costs and reduce business dynamism outside the health sector, put pressure on the federal budget and exacerbate income inequality,” they wrote. “We hope this research motivates future analysis of strategies to address healthcare price growth in the U.S. and ways to screen for and challenge hospital mergers that lessen competition and lead to higher prices,” the researchers wrote in the paper.
The hospital lobby disagrees. In a blog post published Monday afternoon, American Hospital Association Group Vice President for Public Policy Molly Smith critiqued the study's "extremely limited and disparate data," its exclusion of the health sector when quantifying changes in employment levels and its backer Arnold Ventures.
The condemnations were strongest for the researchers' linking of hospital price increases to suicide risk.
"Quite frankly, it is unconscionable given the lengths hospitals go to every day to save people who have attempted or are at risk of taking their own life," Smith wrote. "...Perhaps Arnold Ventures should have directed this funding to research on how to reduce suicide rather than a shoddy attack on those who treat behavioral health problems every day."
Hospitals and health systems jumped into 2024 with a flurry of dealmaking, and industry watchers forecast an uptick in agreements as a fair portion of the sector fends off persistent losses. Rampant consolidation has also become a focal point in Washington, whether that be among federal regulators or lawmakers on both sides of the aisle.