Prices increase and quality declines at independent hospitals after they are acquired by health systems, new research shows.
Average inpatient prices for commercially insured patients rose 5% after health systems acquired an independent hospital, according to an analysis of commercial claims from 2012 to 2018 showing the prices hospitals negotiate with insurers. Readmission rates for patients receiving cardiac care at those hospitals increased by up to 12%, and remained elevated for three years after the acquisition, researchers found.The paper was published by the Public Policy Institute of Elevance Health, which operates Blue Cross Blue Shield plans.
The analysis, using data from Elevance-affiliated health plans in 20 states, compared independent hospitals that merged with a health system and hospitals that remained independent. University of Pennsylvania Wharton School researchers also looked at data from New York’s all payer claims database, Medicare fee-for-service claims and the Hospital Consumer Assessment of Healthcare Providers and Systems survey. The research brief was based on a 2022 working paper, which wasn’t peer-reviewed, published in the Social Science Research Network.
While Elevance has a policy agenda, the research conducted by Wharton faculty and doctoral students was sound, said Lawton Robert Burns, professor of healthcare management at Wharton, who wasn’t affiliated with the paper.
“These academic researchers came to the exact same conclusions as the rest of the literature,” he said. “When hospitals merge, prices go up, quality goes down and access is restricted. It’s a triple-whammy for consumers.”
While hospital acquisition activity dropped off during the COVID-19 pandemic, it has rebounded over the past year, especially throughout the Midwest. The number of independent hospitals continues to drop as acute-care markets become increasingly consolidated.
Independent hospitals, especially those that operate in rural areas, say they need to join larger, well-resourced health systems to negotiate better contracts with commercial insurers, reduce the cost of supply chain and information technology operations, fund infrastructure improvements, improve care and boost access. But providers pursuing mergers are running into resistance from attorneys general and policymakers, who are citing a number of studies showing a correlation between hospital consolidation and price increases. Price increases typically translate to higher insurance premiums and out-of-pocket costs for care.
Access to care and preserving certain services are often sticking points as state officials review potential hospital mergers.
In New Hampshire, for instance, Attorney General John Formella (R) recently reviewed Cambridge, Massachusetts-based Beth Israel Lahey Health’s proposed acquisition of Exeter Health, which includes a 100-bed independent hospital in New Hampshire. He concluded the combination would substantially lessen competition for inpatient services, particular in maternity care, and may lead to higher prices. In June, Formella, Beth Israel Lahey and Exeter agreed on a compromise, including maintaining a minimum level of behavioral health inpatient beds and continuing labor and delivery services for at least 10 years at Exeter, as well as prohibiting anticompetitive contracting terms with insurers.
Although operating expenses declined by 6% post-acquisition, that may be related to service and employment cuts at formerly independent hospitals, according to the paper. Independent hospital acquisitions were associated with 3% employment reductions and the closure of maternity wards, predominantly located in rural areas, researchers found. The Federal Trade Commission and Justice Department are reworking their merger guidelines to better track these types of consolidation-related effects.
“While mergers may create efficiencies, this study shows that consumers do not see corresponding benefits as a result of those efficiencies,” said Jennifer Kowalski, vice president at the Elevance Health Public Policy Institute.
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