Hospital Mergers and Acquisitions Reduce Costs, AHA Report Shows
A new report from the AHA links hospital mergers and acquisitions with decreased annual operating expenses and revenue per admission despite evidence pointing to the opposite.
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By - Hospital mergers and acquisitions reduce healthcare costs and improve care quality, according to a new report commissioned by the American Hospital Association (AHA).
Specifically, the report prepared by Boston-based consulting firm Charles River Associates linked hospital mergers and acquisitions to a 2.3 percent reduction in annual operating expenses and a 3.5 percent decline in revenues per admission at acquired hospitals.
The report also showed statistically significant improvements in outcome measure of quality at acquired hospitals, including decreases in 3-day readmission rates composite index, 30-day mortality rates composite index, and the overall outcome composite index.
“In this era of rapid change within the health care sector, hospitals and health systems remain committed to meeting the needs of all patients,” Rick Pollack, AHA president and CEO, stated in a press release. “Mergers have become one of the critical means through which hospitals can provide their communities with high-quality, convenient and cost-effective care. The benefits of mergers allow hospitals to create connected networks of care and keep the focus where it belongs: on improving care for the patient.”
Hospital mergers and acquisitions can generate significant value for patients and their communities, the AHA asserted. However, the report contradicts a growing body of literature that says consolidation does the opposite.
One of the more comprehensive analyses of the impact of hospital mergers and acquisitions on prices was published by the National Bureau of Economic Research last year. The analysis conducted by economists from Yale, University of Pennsylvania, Carnegie Mellon University, and MIT showed prices at monopoly hospitals are 12 percent higher than those in markets with four or more rivals and monopoly hospitals negotiate more favorable terms with hospitals.
The economists, who examined 366 hospital mergers and acquisitions, also found that prices increased by more than six percent when merging hospitals were five miles or less apart.
A recent study of cross-market hospital mergers from Leemore Dafny, a professor of business administration at the Harvard Business School, also revealed that prices increased by seven to ten percent if merging hospitals are 30 to 90 minutes apart. Price increases at the acquirer were also unlikely to be associated with quality improvements, she concluded.
Hospital mergers and acquisitions, however, will bring down prices through greater scale, the AHA report stated. For example, the report showed that hospitals save $6.2 million in annual operating experiences and $9.2 million in net patient revenue per adjustment admission per year after an acquisition
“These results suggest that savings that accrue to merging hospitals are passed on to patients and their health plans,” the report stated.
Interviews with health system and hospital leaders whose organization recently went through recent merger or acquisition deals also reported benefits from the transaction, including increased scale, which allowed the organization to invest in and use more sophisticated data analytics capabilities and use artificial intelligence and other innovative technologies to extend care.
Other benefits cited by the interviewees from ten hospital systems included improved patient access to care from alignment with other types of healthcare providers, a greater ability to ensure patients receive care in the most appropriate setting, and more capacity to take on financial risk.
“Health system leaders consistently spoke of the heightened pressure to provide better care more efficiently. Our econometric research indicates that the scale that hospital mergers can provide results in the cost-effective delivery of high quality care,” Monica Noether, PhD, vice president at Charles River Associates and the lead author of the study, stated in the press release.
Industry leaders and policymakers have been debating the impacts hospital mergers and acquisitions have on cost and quality. But the debate has done little to hinder the rate of consolidation in the healthcare industry.
The number of hospital mergers and acquisitions has steadily increased in the last decade, reaching a record of 117 deals in 2017, consulting firm Kaufman Hall reported. Hospital merger and acquisition activity is still going strong, with deals also significantly growing in value.
