New Research Finds Hospital Mergers Drive High-Value, High-Performing Health Care

The American Hospital Association (AHA) today released new research that finds recent hospital mergers result in significant costs savings and quality improvements that cannot be replicated by looser affiliations. The analysis, Hospital Merger Benefits: Views from Hospital Leaders and Econometric Analysis, prepared by economists at Charles River Associates (CRA) shows how hospital mergers can provide a framework to transform health care in the United States.

“Patients deserve a high-value, high-performing health care system,” said Rick Pollack, president and chief executive officer of the AHA. “The key to transforming health care 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 health care system of the future.”

The research shows that mergers can result in efficiencies that unleash savings, innovation and quality improvement essential to transforming health care delivery. Importantly, the data also show that mergers do not lead to a spike in revenues that some claim are the motivation for mergers.

Among the study’s other key findings:

• Mergers decrease costs due to economies of scale, reduced costs of capital and clinical standardization among other efficiencies. An empirical analysis showed a 2.5 percent reduction—equating to $5.8 million—in annual operating expenses at acquired hospitals.
• Mergers have the potential to drive quality improvements through standardization of clinical protocols and investments to upgrade facilities and services at acquired hospitals.
• Mergers typically expand the scope of services available to patients, and build upon existing institutional strengths to provide more comprehensive and efficient care.

CRA researchers led structured interviews about merger experiences with executives at 20 hospital systems during 2016. Those experiences were confirmed by a comprehensive econometric analysis that looked at mergers between 2009 and 2014.

Monica Noether, Ph.D., vice president at CRA and the paper’s lead author said, “Our research pairs real-world observations from some of America’s top hospital executives with a comprehensive economic analysis to produce 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.”

Hospital executives interviewed agreed that the benefits of mergers cannot be realized through looser affiliations between organizations, which is contrary to the position of some enforcement officials who claim looser institutional affiliations can produce the same benefits as mergers.

In this era of health care transformation, the hospital leaders confirmed that access to capital and other resources is essential to ensuring access to affordable and high quality care in their communities. Without the injection of financial resources that only a full-fledged merger makes possible, some institutions will not be able to underwrite the transformative, value-driven and patient-centric initiatives that patients deserve.

For health care to flourish in today’s environment—and well into the 21^st century— the type of efficiencies that mergers create are often the only means to obtain meaningful cost and quality benefits. That is one reason that hospital mergers grew over the decade. According to Kaufman Hall & Associates, LLC, there were 102 hospital mergers in 2016.

A copy of the full Charles River Associates study, executive summary and infographics are available here: http://www.advancinghealthinamerica.org/home/coordinating-care/.

About Charles River Associates

Charles River Associates® is a global consulting firm specializing in economic, financial, and management consulting services. CRA advises clients on economic and financial matters pertaining to litigation and regulatory proceedings, and guides corporations through critical business strategy and performance-related issues. Since 1965, clients have engaged CRA for its unique combination of functional expertise and industry knowledge, and for its objective solutions to complex problems. Headquartered in Boston, CRA has offices throughout the world. Detailed information about CRA, a registered trade name of CRA International, Inc., is available at www.crai.com.

About the AHA

The AHA is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA is the national advocate for its members, which include nearly 5,000 hospitals, health care systems, networks, other providers of care and 43,000 individual members. Founded in 1898, the AHA provides education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA website at www.aha.org.