Report finds hospital mergers reduce costs, enhance quality and services

Recent hospital mergers reduce costs by harnessing operational efficiencies that can’t be gained through looser affiliations, improve quality and expand the scope of services available to patients, says an AHA-commissioned study unveiled Jan. 25 at a Washington, D.C. briefing.

The study by Boston-based Charles River Associates (CRA) found that mergers occurring between 2009 and 2014 reduced by 2.5% – amounting to $5.8 million – annual operating expenses at acquired hospitals. It said these mergers are driving quality improvements by standardizing clinical protocols and investments to upgrade facilities and services at acquired hospitals.

“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 health care system of the future,” said AHA President and CEO Rich Pollack at the briefing on the study. He noted that the consolidation studied did not lead to a spike in revenues that some claim as a motivation for mergers.

CRA Vice President Monica Noether, the study’s lead author, called the analysis the most comprehensive examination of hospital mergers in years. “The findings are clear: hospital mergers facilitate greater efficiency that reduces costs and encourages better quality care,” she said.

As part of the study, CRA researchers last year interviewed 20 hospital executives about their merger experiences. Noether said those executives took issue with the contention by some in the antitrust enforcement community that looser institutional affiliations can produce the same benefits as mergers. And the hospital leaders said access to capital and other resources is key to ensuring that patients continue to receive affordable and high-quality care.

Also participating in the briefing were Marna Borgstrom, president of Yale New Haven (CT) Health System, and Thomas Zenty, CEO of University Hospitals in Cleveland, whose organizations have recently been involved in health care consolidation that have produced measurable benefits for their patients and communities.

“The important thing that we are looking at is how to lower the total cost of care and … give people better access,” said Borgstrom, whose system includes five hospitals extending from southeastern Connecticut to western Rhode Island.

Among other benefits, mergers can bolster physician recruitment, Zenty observed. “Physicians know there is a brand and there is a reputation behind that brand and they can join an organization that will be in existence well into the future and where they can carry out their expertise,” he said. University Hospitals includes 14 hospitals across northeast Ohio.

Antitrust agencies need to be more understanding about what is driving hospital mergers, said antitrust expert Toby Singer, a former attorney with the Washington, D.C. office of Jones Day. “The antitrust agencies sometimes jump way too quickly to the conclusion that this is about market power,” she said. “Ninety-nine percent of the time these are not market power grabs or a way to raise prices.” And she added that hospital mergers frequently gain even more efficiencies than initially expected.