Hospital Mergers Slow Wage Growth for Skilled Workers, Nurses
Annual wage growth slowed by 1.1 and 1.7 percentage points for skilled non-health workers and nursing and pharmacy workers, respectively, in markets with hospital mergers.
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By - How hospital mergers and acquisitions impact care quality and costs in a market is still up for debate, but new research from the Kellogg School of Management at Northwestern University presents evidence that healthcare consolidation negatively impacts one aspect of the market: provider wages.
In a recent working paper, Kellogg’s Elena Prager and Matt Schmitt of UCLA’s Anderson School of Management compared wage growth in markets experiencing hospital mergers to those that did not and found that wage growth slowed when the hospital merger was larger and when workers had industry-specific skills.
In the top concentrated markets, annual wage growth was 1.1 percentage points slower for skilled non-health professionals and 1.7 percentage points slower for nursing and pharmacy workers, the analysis of 84 hospital mergers from 2000 to 2010 uncovered.
In comparison, average annual wage growth across the country is around three to four percent.
“That means you’re losing about a third of annual wage growth,” Prager said in a press release. “If you extrapolate that over the course of a few years, you’ll see it could make the difference between outpacing inflation and not keeping up with it.”
In contrast, hospital mergers had little impact on the wages of “unskilled” healthcare professionals. The researchers observed “no discernable change” in wages for cafeteria workers and other unskilled healthcare professionals.
Prager explained that low-skilled workers did not experience a change in wage growth post-hospital merger because the workers “could relatively easily substitute to a job in a completely different industry.”
“If you’re a hospital cafeteria worker, for instance, you could go to a fast-food job at a shopping mall, or switch out of food services entirely,” she continued in the press release. “But if you’re in nursing or pharmacy, your educational and training investments are much more specific and we assume you’d have a harder time finding alternate employment.”
Prager and Schmitt are confident that employer concentration after a hospital merger is the reason behind wage growth stagnation in concentrated markets. They considered several alternative explanations, including the role of demand itself: fewer employers generate less outpatient, resulting in less need for workers.
However, when comparing various measures of hospital output, like inpatient discharges, the researchers did not find evidence of wage reduction, nor did they see a reduction in full-time healthcare employees in an area experiencing a hospital merger.
The composition of the workforce in an area post-merger also did not impact healthcare wage growth, they found after examining data from the American Hospital Association (AHA).
The findings from the working paper could have significant implications for hospital merger and acquisition scrutiny.
Policymakers and industry leaders have expressed concerns that the rapid rate of healthcare consolidation is negatively impacting patient care, especially through increased prices. The concerns have prompted federal and state officials to increase scrutiny of proposed mergers and acquisitions.
State and federal investigations primarily focus on how the merger or acquisition would impact care access, quality, and/or costs. But perhaps industry leaders and authorities should be considering a deal’s potential impact on healthcare labor and wages in a market, especially when the deal would increase employer concentration in a specific area.
Wage reductions have a substantial impact on consumer welfare, the researchers argued.
“Because the workers affected by a merger are also consumers, a tightening of their budget constraint due to wage slowdowns decreases their welfare,” they wrote in the working paper. “Accounting for this consumer subgroup may therefore lead to the merger decreasing consumer welfare, even if the merger leads to lower prices.”
The suggestion, though, does not necessarily mean that state and federal authorities need to drastically modify their hospital merger and acquisition strategies. Adding a wage and labor layer to their existing consumer welfare reviews will help to truly assess a hospital merger, the researchers stated.
