Does Hospital Consolidation Help or Harm Patients?

Expert Panel Debates Implications of Mergers, Acquisitions on Costs, Care

September 16, 2014 03:35 pm Michael Laff Washington –

Many physicians in solo or small practices are concerned about the narrowing range of options when considering the future of their practice. Some of their colleagues have chosen to sell their practice to a hospital or medical center, while others have chosen to become hospital employees.

Martin Gaynor, Ph.D., center, director of the Bureau of Economics at the Federal Trade Commission, discusses hospital consolidation alongside John Colmers, M.P.H., a vice president at Johns Hopkins Medicine, and attorney Sharis Pozen, J.D., at a recent policy event in Washington.

Debate continues regarding ongoing consolidation of hospitals and whether such moves leave patients with less choice and lead to higher costs for essential care. To add to the conversation, the nonpartisan news organization Politico Pro hosted a panel discussion( here this week on the effects of hospital consolidation. During the event, panelists weighed in on the effects of hospital mergers on care costs and competition for consumers.

One of the reasons hospital mergers continue is the lack of consensus among experts about their impact on care. Even at the Politico event, panelists disagreed strongly with one another about whether mergers reduce competition and increase overall medical costs.

Martin Gaynor, Ph.D., director of the Bureau of Economics at the Federal Trade Commission (FTC), explained that FTC officials evaluate a proposed merger based on its potential to lower costs and improve coordination of care.

Story highlights
  • The number of hospital mergers has risen sharply in the past two years.
  • No consensus exists regarding whether hospital mergers are harmful to patient choice or increase medical costs.
  • The Federal Trade Commission does not oppose the vast majority of mergers because it lacks evidence to prove they are harmful.

Noting that there were about 1,000 hospital mergers between 1994 and 2000, Gaynor said most of the recent mergers did not cause concern unless a single hospital system gained concentrated power in a small market.

"The question is whether the merging hospitals are the best alternative (for) consumers," he said. "Are you eliminating one or two close competitors? If so, then we look at it."

With the vast majority of proposed hospital mergers, Gaynor said, the FTC reviews the case and closes it without taking action because the commission often lacks evidence to prove a merger will harm competition in the market.

Gaynor did add one major caveat to his explanation, however: "Once mergers occur, it is very difficult to undo them."

Another panelist, Barak Richman, J.D., Ph.D., a professor of law and business administration at Duke University in Durham, N.C., said health care costs are continuing to rise at a financially unsustainable level. He called the situation a "national crisis."

"We spend too much," Richman said. "Prices are too high. We don't have adequate provider competition. We need to revive our competitive system."

The United States has the highest level of health care spending per capita among developing countries but produces outcomes that are in the middle of the pack, Richman noted.

Sharis Pozen, J.D., an attorney with Skadden, Arps, Slate, Meagher & Flom LLP and a former acting assistant attorney general with the Department of Justice, strongly disagreed with Richman, however. She said the pace of change in medical care combined with demands to integrate services is leading some institutions to join forces as a cost-saving measure.

"Hospital administrators are under incredible pressure today as reimbursement rates are going down," said Pozen. "There is a real push for innovation, but the costs associated with electronic health records are phenomenal. Mergers and acquisitions are something that naturally happened in that pressurized environment."

Pozen said the FTC should review the mergers on a case-by-case basis. Hospitals have to contend with fragmented delivery of care and are trying to align themselves properly, she noted, and consolidation through merger is not a negative in and of itself.

"They (mergers) are not all anticompetitive," said Pozen. "The vast majority are not raising prices and not causing the issues that you are seeing."

Richman countered that hospitals are using their own cost structure as justification for merging, something that should not be accepted without evidence that the move will improve care and lower costs.

"If market participants are facing pressure, that does not justify a merger," Gaynor acknowledged, noting that hospitals in the same market could achieve greater efficiencies through a variety of cooperative agreements without having to merge.

Hospital mergers and acquisitions increased by 10 percent during the first quarter of 2014 compared with the same period the previous year. In 2013 overall, the number of hospitals and hospital beds involved in mergers and acquisitions reached a five-year high despite a reduction in the number of transactions, according to a report( from the Healthcare Financial Management Association.

In April, the AAFP wrote a letter to the FTC asking the agency to focus more closely on the potential limits on patient choice and reimbursement rates to physicians caused by the increasing number of hospital mergers.

According to panelist John Colmers, M.P.H., a vice president at Johns Hopkins Medicine in Baltimore, the debate is not so much about whether to promote more or less competition as it is about addressing incentives for improving care.

"We agree that the health care system needs vast improvement," said Colmer. "I'm a strong believer in the idea that we need to create incentives for organizations to produce better outcomes."

However, he added, "The notion that competition is the solution for it is, in my opinion, naïve."