Cost Inflation of Hospital Mergers, Physician Acquisitions
By - In a recent letter addressed to The Wall Street Journal’s Editor from a group of healthcare leaders and experts, Rich Umbdenstock, President and CEO of the American Hospital Association (AHA), Brian Kent, MD, Robert W. Geist, MD, and Richard L. Reece, MD, offer their reactions and responses to an op-ed piece by Surgeon and Professor Marty Makary, MD, MPH, in The Wall Street Journal about the detrimental cost of hospital mergers and acquisitions.
The Affordable Care Act turmoil
According to Makary’s op-ed piece, The ObamaCare Effect: Hospital Monopolies, multi-hospital conglomerates are breaking the economic backbone of the healthcare industry. Last year’s record number of 95 hospital mergers and acquisitions now yields elevated prices due to dwindling competition and the blatant evaporation of choice, says Makary.
Although hospital consolidation operates as a firm buttress in relation to the Affordable Care Act, which initiates physician and hospital incentives for accountable care organization (ACO) collaboration efforts, Makary states a vital yet generally overlooked ACO model prerequisite is hospital competition.
“Today’s frenzy of hospital mergers and physician practice acquisitions is giving hospital systems even greater leverage to inflate opaque ‘charge-master’ medical bills that even hospitals are sometimes unable to itemize sensibly,” explains Makary. “With no mechanism to allow free-market forces to keep prices in check, this translates into higher health-insurance deductibles and copays for insured Americans, and in the case of Medicare and Medicaid, higher taxes.”
Beneficiaries residing in rural areas may especially be at a financial disadvantage in cases when only one hospital is the only provider around, says Makary. Standalone hospitals are becoming powerful organizations with greater financial authority. “When you’re the only game in town, you call the shots,” Makary states.
Efforts are in place to curb such financial power. Earlier this year, an $843 million takeover of the six-hospital strong Daughters of Charity Health System with 34 acute-care hospitals dispersed across 10 states was approved via formidable stipulations, says Makary, including mandatory requirements that facilities operate as acute-care hospitals with emergency services for 10 years and continue providing essential health services, such as reproductive healthcare.
Mergers mean hospital costs are rising, says Makary. “On a national level, physician groups bought by large hospital systems are often prodded to send patients for ambulatory surgery and diagnostic procedures to the departments of their parent hospital, which may charge more than other outpatient centers the doctor might prefer,” Makary maintains.
Beneficiaries' costs are almost 20 percent higher for physician groups in multi-hospital systems than physician-owned organizations, according to a study in The Journal of the American Medical Association (JAMA) by James C. Robinson, PhD, MPH, and Kelly Miller, BA, of 150 hospital-owned and physician-owned organizations.
“Hospitals are rapidly acquiring medical groups and physician practices,” state Robinson and Miller. “This consolidation may foster cooperation and thereby reduce expenditures, but also may lead to higher expenditures through greater use of hospital-based ambulatory services and through greater hospital pricing leverage against health insurers,” they add.
Says Makary in response to such data, “The great majority of mergers occur with little if any public debate about how they will effect prices or patients.” It is simply an unintelligent option to have a singular corporation in charge of one type of care for an entire region, Makary adds.
Advantages in hospital mergers and acquisitions illusory?
In response to the aforementioned ideas, the AHA and physicians express a variety of concerns.
According to Kent, there was a marked disconnect between hospital administration and clinical care at every hospital he has practiced at thus far. Kent claims hospital executives – businessmen – are not passionate about medicine.
“As large hospital systems digest other hospitals and physician practices, I don’t see anything positive for patients or doctors,” says Kent, calling Makary’s piece a tremendous understatement. “Although I find it difficult to wrap my brain around the positive effects of multi-hospital conglomerates, I am familiar with the end-product of digestion,” explains Kent.
In relation to Kent’s statement, Geist inquires about which cartel partner will control the other. “The price to the nation of a state-corporate cartel system has not been calculated; it may be very high,” confirms Geist.
Expressing similar views, Umbdenstock adds hospitals candidly thirst for capital and must be good credit risks in order to pay for and maintain expensive electronic health records (EHRs) and, in turn, meet or exceed updated quality measures. “Viewing changes in the hospital field through the rearview mirror of yesterday’s regulations isn’t a luxury consumers want or can afford,” Umbdenstock maintains.
Lastly, Reece confirms he is an advocate of freeing up physician regulation to allow hospital competition. Monopolies will charge what the traffic will tolerate, Reece adds. Reimbursement cuts and excessive resources spent on EHRs and ICD-10 coding means physicians are essentially being propelled into hospital employment, Reece maintains, claiming hospitals are merely attempting to protect themselves via consolidation.
Will record highs mean record high costs?
As the record high of 95 hospital mergers, acquisitions, and joint ventures increases and healthcare services continue to multiple and expand, it is possible there will be dire financial consequence within the healthcare industry at large. Higher prices for increasing premiums and healthcare services, a weeding out of those organizations that can no longer afford to keep up, and increasing concern about hospital competition are viable concerns the healthcare industry is closely paying attention to.
Although there is variation in opinion and research about whether or not hospital mergers will indeed allow for greater quality and advanced efficiency, the actual manifestation of widespread growth and power will hopefully only strengthen the healthcare industry’s revenue cycle backbone.
