Large, for-profit hospital chain merger didn’t boost profitability


A merger between large, successful, for-profit hospital chains didn’t produce significant gains in profitability or health outcomes, new research shows.

The acquirer’s hospital margins decreased by 3.3 percentage points as cost inflation outpaced revenue growth, according to a peer-reviewed analysis of a 2007 merger involving more than 100 hospitals that tracked financial, management and quality data over an eight-year period. While the combined system improved their electronic medical records, prices rose by 37% at hospitals operated by the parent company and there was a negligible impact on care quality, the working paper published in the National Bureau of Economic Research revealed.

“They tried to change things, but it was surprising that the effects were either not there or negative from a profit standpoint for the parent organization,” said Raffaella Sadun, a business administration professor at Harvard University. “The organizational costs associated with large mergers are often much larger than what is forecasted. We know that’s why a lot of mergers fail.”

Most target hospitals replaced their EMR with the parent company’s, the study found. There weren’t meaningful changes to physician turnover and hiring trends post-merger. But executives from the parent company frequently took on management roles at target hospitals and unified managerial practices across the combined organization. Still, those changes didn’t drive statistically significant improvements in target hospitals’ operating margins.

The number of full-time equivalents dropped at the parent company’s hospitals post-merger while capital investment declined at target hospitals.

As for patient care, mortality rates hardly changed. Readmission rates declined among the target hospitals and slightly increased for the parent company.

“This is one more piece of evidence that is consistent with prior research showing that decades of mergers haven’t produced substantial evidence of efficiency gains,” said Martin Gaynor, a health economist and health policy professor at Carnegie Mellon University. “If these mergers are really driving down hospital costs, improving quality of care or care coordination, we should’ve seen it by now. We’re not saying that any hospital merger is problematic, but so many of these markets are dominated by one or two big systems and any further mergers are potentially very suspect.”

Download Modern Healthcare’s app to stay informed when industry news breaks.

The American Hospital Association said in a statement that the conclusions are too broad based on a single, unrepresentative case study, noting that the study didn’t mention pertinent trends like Medicaid expansion, the Affordable Care Act implementation or uncompensated care reimbursement cuts.

Hospital executives claim that mergers will help their organization become more efficient, which will lower costs, improve quality and increase access to care. But in many cases, hospitals struggle to combine their organizations and fall short of expectations, most research shows.

In theory, hospitals should be able to use their market power to negotiate better rates with equipment vendors and reduce related expenses.

Horizontal hospital mergers saved acquired hospitals $176,000, or 1.5%, annually on average, which fell well short of their targets established in the proposal, according to a 2018 working paper from researchers at University of Pennsylvania’s Wharton School that analyzed hospital supply purchase orders from 1,200 hospitals over a six-year span.

Neighboring systems were able to maximize negotiating leverage for high-tech physician preference items. But overall, supplier concentration, downstream market power or standardization didn’t produce significant savings, researchers found.

“A lot consolidation hasn’t really born out born out the cost efficiencies and lived up to its promise in many areas,” said Dr. Harry Greenspun, chief medical officer of the consultancy Guidehouse. “When organizations fumble their way into consolidation and don’t properly integrate, it opens up further scrutiny.”

Scale isn’t always a path to more profits, Guidehouse found in its 2018 analysis of 104 highly rated health systems. There was no correlation between higher revenues and better operating margins from 2015 to 2017, the consultancy’s study found.

Hospital care accounts for nearly a third of the U.S.’ $3.8 trillion healthcare bill, which makes up nearly a fifth of the economy. Hospital cost inflation, combined with the fact that about 90% of acute-care markets in metro areas are highly concentrated, has drawn more regulatory and congressional scrutiny.

President Joe Biden has pushed for stronger oversight of hospital consolidation. Meanwhile, there are a myriad of federal and state bills that would potentially boost the budgets of antitrust enforcers and tweak the oversight process.

“The burden should be on hospitals to demonstrate that mergers are not harmful to competition or consumers from an antitrust perspective,” Gaynor said, noting that state attorneys general have broader authority than federal agencies. “You might start asking merging parties about their management plan and if they can fulfill it.”



Source link

Leave a Reply

Your email address will not be published.