Consolidation raises concerns about competition, costs, and quality of care
Certainly two of the bigger stories this past year regarding healthcare costs and availability involved the impending insurance company merger between Aetna and Humana and Anthem's purchase of Cigna. These mergers would reduce the number of major insurance providers in the United States from five to three—and, in certain areas of the country, would decrease available options from two to one. This seems at odds with the country's goal of decreasing healthcare costs. Organizations including the AAOS, the American Medical Association (AMA), and the American Hospital Association (AHA) have all voiced their concerns regarding these mergers.
Similarly, and no less importantly, U.S. hospitals and healthcare systems continue to consolidate into increasingly larger healthcare systems. This gives rise to the same concerns—cost control and availability—as well as other quality measures that may also have an impact on our patients and our lives as orthopaedic surgeons. Although buyouts and mergers among insurance companies have made more headlines than those between healthcare systems, consumers may one day be faced with just four or five massive national healthcare systems that generate the same concerns regarding regional monopolies and lack of competition.
A growing trend
According to Kaufman, Hall, & Associates, LLC (Skokie, Ill.), the number of hospital transactions and acquisitions in the United States was at least 95 per year between 2012 and 2014, jumping to 112 in 2015. Consulting firm Kurt Salmon predicted that "most markets will be dominated by two or three major health networks" by the year 2020, with many markets—including Boston, Detroit, Dallas, San Francisco, and Baltimore—already falling under that definition.
As physicians, we should not only be concerned in terms of patient care and providing that care at reasonable cost, but also must recognize the potential danger to our own livelihoods. Solo and smaller private practices may have difficulty dealing with, and in many cases, competing with such large organizations.
Indeed, the top 25 for-profit and nonprofit hospital systems currently account for $890 billion in patient charges, with the nation's largest system, Hospital Corporation of America (HCA), charging $187.13 billion. Proponents of hospital mergers argue that consolidating hospitals and clinicians' practices into large corporate organizations enables better efficiencies and provides better value to patients. Ideally, a hospital merger will not only reduce cost, but also improve patient outcomes by delivering better care.
The problems with consolidation
However, not everyone agrees. According to Martin S. Gaynor, director of the bureau of economics at the Federal Trade Commission (FTC), "Hospitals that face less competition charge substantially higher prices … as high as 40 percent to 50 percent." An article in the Journal of the American Medical Association (JAMA) reported on total expenditures for the care provided to 4.5 million California residents covered by commercial insurance providers after adjusting for illness burden and other costs. It found that expenditures for local hospital-owned physician organizations were 10.3 percent higher than those for physician-owned organizations. In addition, multihospital system-owned physician organization expenditures were 19.8 percent higher than physician-owned organizations. Ultimately, the authors of the JAMA article concluded, "Although organizational consolidation may increase some forms of care coordination, it may be associated with higher total expenditures."
In his piece for The New York Times, Eduardo Porter explains how healthcare system mergers actually increase healthcare spending in many cases. The article tells the story of the FTC's investigation of the merger between Evanston Northwestern Healthcare Corporations and Highland Park Hospital. The merger led to increased costs as fees increased and insurers were forced to accept deals that they otherwise would have rejected. Mr. Porter cites Leemore Dafny (formerly of Northwestern and now a professor at Harvard Business School), whose analysis of hospital mergers between 1989 and 1996 found that hospitals increased their prices by roughly 40 percent after a merger.
Less competition in a local market enables institutions to increase their leverage when bargaining with insurance providers, which may also have a national impact. Research indicates that hospitals "gain bargaining power when they are acquired and become part of a big hospital system that has no other presence in the local market." This suggests that large national chains can negotiate more favorably with insurance companies simply by having a presence in many markets. These large systems can thus potentially increase costs to insurance companies irrespective of their relative local market share—costs that eventually will make their way to the consumer.
Do outcomes really improve?
The other potential benefit from hospital system consolidation—improved outcomes—has never really been proven in the literature. Indeed, many of the supposed benefits of larger hospital systems existed prior to the current wave of consolidation. An article in JAMA last year discussed some of these supposed benefits. For instance, the concept of sending patients to high-volume centers to improve outcomes does not require the existence of large-scale healthcare organizations, but does require strong tertiary referral centers—a system that already exists in many parts of the country. In fact, the Internet has made it even easier for patients to find centers of excellence and physicians that specialize in certain conditions.
Supporters of conglomeration also argue that systems can have increased quality control across the system. However, many recent quality and safety advances (such as the World Health Organization's Surgical Safety Checklist and the AAOS clinical practice guidelines) happened when physicians from multiple organizations came together to create data-driven treatment algorithms and safety measures.
Finally, what would happen if competition deteriorated to the point that large organizations had the power to decide that their providers can only perform a certain operation for a given condition (with no choice in implant or device used) or that a physician can prescribe only certain medications as part of cost-saving measures? What would this mean for advancing technology? How would this affect our practices?
Ultimately, this trend toward larger hospital systems may continue, at least for the near term. In 2013, a study by the Alliance for Health Reform found that 78 percent of U.S. hospitals were either considering a merger or in the process of merging with another institution. We as physicians need to stay informed on the subject and address it before it gets too far out in front of us.
Derek F. Papp, MD, is currently an AANA Health Policy Fellow; Louis F. McIntyre, MD, is a member of the BOS Health Policy Committee.
- Kaufman, Hall & Associates: "Hospital Merger and Acquisition Activity Up Sharply in 2015, According to Kaufman Hall Analysis." January, 2016. Accessed 10/17/2016.
- Salmon, K: "Applying Economic Theory to Health Care Provider Consolidation." Kurt Salmon Management Consulting. Accessed 9/30/2016.
- Goodman M. "Four of the 25 Largest Hospital Systems in U.S. are Headquartered in North Texas." Dallas/Fort Worth Healthcare Daily June 17, 2016. Accessed 9/30/2016.
- Pear R: "F.T.C. Wary of Mergers by Hospitals." The New York Times Sept. 17, 2014. Accessed 10/16/2016.
- Robinson JC, Miller K: "Total Expenditures per Patient in Hospital-Owned and Physician-Owned Physician Organizations in California." JAMA 2014;312(16):1663–1669.
- Porter E: "Health Care's Overlooked Cost Factor." The New York Times June 11, 2013. Accessed 10/15/2016.
- Xu T, Wu AW, Makary MA: "The Potential Hazards of Hospital Consolidation, Implications for Quality, Access, and Price." JAMA 2015;314(13):1337–1338