John Commins | August 19, 2015
As many as 20% of hospitals will seek mergers over the next five years, and none of the 306 hospital referral regions in the United States is considered “highly competitive,” researchers say.
Hospital mergers that create monopolies in their service areas can drive up costs and reduce quality while presenting a risk for a government bailout if they become “too big to fail,” two health policy experts from Johns Hopkins University say.
In a commentary in the Aug. 13 issue of JAMA, the two researchers call on the Federal Trade Commission to be more aggressive in its review of hospital mergers, particularly when the mergers could create a single dominant hospital system in one geographic area.
“What we are saying is that the basic principles of economics hold true for medical pricing in the same way they do for any other industry,” says “viewpoint” lead author Marty Makary, MD, MPH, professor of surgery at the Johns Hopkins University School of Medicine and associate professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.
Hospital Consolidations at the Tipping Point
Makary and his co-author, Tim Xu, a student at the Johns Hopkins University School of Medicine, note that hospital consolidation has accelerated at an “alarming” rate over the past five years, with 95 hospital mergers of some sort occurring in 2014, the most since 2000.
The two researchers cite studies showing that as many as 20% of hospitals will seek mergers in the next five years, and that none of the 306 hospital referral regions in the United States is considered “highly competitive” and that nearly half are “highly concentrated.”
Makary draws parallels between hospital consolidation and the consolidation of the banking industry, which required a taxpayer bailout when it collapsed during the Great Recession. He says such a scenario could occur when some geographic regions are controlled by one health system.
“If a bank goes out of business because of bad decisions and the consequences affect everyday businesses and consumers—and that is what happened—as a society, we decided that because of that it is justifiable to use taxpayer dollars to bail out the bank. That is why we created the concept of ‘too big to fail’ as being something that there is a low appetite for in the United States. We have created healthcare systems that are so large that they dominate an entire state and maybe too big to fail.”
Makery rejects the assertion that hospitals are consolidating to protect themselves from consolidation in the health insurance sector.
“There is a huge difference,” he says. “While we still have a small group of geographically large insurers, the competition at the local level is still fierce. That competition keeps the market healthy and keeps pricing reasonable for the consumer.”
“But when you get sick,” he says, “if there is only one hospital system in a giant geographical region the patient is far less likely to choose care far outside that region than they are to choose a different health insurer when they are shopping.”
“I believe insurance pricing remains very competitive. The pricing is transparent and the dollar amount spent on benefits is public information and unrestricted,” Makary says. “Price increases are lower at the hospital level when there is negotiating leverage by the insurers. When there is less leverage by insurers the prices are higher and those are passed on directly to consumers in the form of high deductibles and copays.”
Clinical Integration vs. Consolidation
Makary also challenges the idea that hospitals need to consolidate to prepare for integrated care and population health. That claim, he says, relies upon “metrics that are far too immature to be meaningful for value-based goals. The enthusiasm for ACOs has outpaced the maturity of the metrics for patient outcomes.”
He says there is much evidence to suggest that benchmarking hospital quality scores at the state and regional level has had a tremendous effect on improving quality, and that does not require consolidation.
“The method is there and the alignment of incentives are there for hospitals to perform well and to collaborate around quality,” he says. “Clinical integration is a great way in which patient information can be shared across institutions, where affiliations can allow expertise, consultations, and referrals to connect the most appropriate doctors and facilities with the patients who need that specialized care. But all these benefits can occur within the context of hospitals competing or not being wholly owned by one central corporation.”
Makary says he is not rigidly opposed to consolidations, as long as it doesn’t muzzle completion. He notes that his employer, Johns Hopkins Hospital and Health System, has consolidated “in a highly competitive geographic region that remains highly competitive with several large health systems.”
“The prerequisite is that there remains completion,” he says. “There are no pricing concerns when you have mass consolidation of a system competing with another system. The concern is in a geographic region where patients don’t have feasible options to get care elsewhere.”
Mega-mergers that create monopolies put hospitals on one of two roads, Makary says.
“One road is where they apply best practices and improve quality across the board and create a tide that raises all boats in their system, which is good,” he says.
“On the flip side, other systems have had their central management detached from the frontline providers in their system and the disconnect has caused problems. If you talk to doctors and nurses in these large systems they will tell you they know how to improve quality of care in their system but that the system is too large for them to have input and their wisdom is not being solicited.”
Source: Health Leaders Media
http://healthleadersmedia.com/print/COM-319811/Experts-Warn-of-TooBigtoFail-Hospital-Mergers