The Definitive Blog

New Study Shows that Hospital Mergers Lead to Higher Costs

This past year, the trend of consolidation in the healthcare industry continued with an increase in merger and acquisition activity among hospitals and integrated delivery networks (IDNs).  Between 2014 and 2015, Definitive Healthcare has tracked nearly a 50% increase in such activity. While these consolidations have undoubtedly resulted in some efficiencies, a concerning trend has emerged from a recent study led by Leemore Dafny of the Kellogg School of Management. This study, which looked at over 500 mergers from 2000-2012, showed an increase in prices when hospitals in the same state merge, but cross different local markets – and that this increase hurts insurers, employers, and consumers as costs have risen as hospitals get bigger and more powerful.  Some of these mergers occur with the thought that they will improve their community in the long term. That is generally not the case, as basic costs have seen an increase between 6 and 10 percent with these cross-market mergers. Definitive Healthcare tracks merger-related news stories, and the states with the most stories over the past three years are shown in the chart below.  With hundreds of additional mergers since the end of this study period, it’s likely that many more consumers have since been impacted by these cost increases.

states-with-the-most-mergers-activity

More concerning is the lack of scrutiny these transactions receive from both the state and federal level. With this new information, attorney generals now have a framework and a baseline of information to scrutinize these mergers. Of the top five states with the most merger activity, at least one has taken interest in Dafny’s study. Massachusetts Assistant Attorney General Karen Tseng hopes that this new information will provide her office with a better frame of reference for investigating these deals. But even with careful scrutiny it’s not so simple to determine how much a merger might causes prices to increase. So the trick will be to avoid nixing proposed mergers where the good effects would outweigh the bad.

There are some who believe that the mergers are not directly correlated with price increase. The American Hospital Association said in a statement that these mergers provide patients with access to care and can’t be used as a meaningful predictor of price change. Only time will tell if there is such a correlation as more and more hospitals are merging in the ever changing healthcare landscape.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on hospitals, physicians and other healthcare providers. Our hospital database tracks over 7,000 hospitals in the US and allows users to view real-time news and events at these organizations through daily alerts.  Topics covered include mergers and acquisitions, executive movements, legal issues and more.

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