Big Med's Spread

Abstract

Hospital executives posit a number of rationales for system mergers which lack any basis in academic evidence. Decades of academic research question whether system combinations confer public benefits. Antitrust authorities need to continue to closely scrutinize these transactions. Recently, mergers of hospital systems that span different geographic markets are on the rise. Economists have alerted policymakers about the potential impacts such cross‐market mergers may have on hospital prices. We suggest there are other reasons for concern that scholars have not often confonted. Cross‐market mergers may be conducted for purely self‐serving reasons of organizational growth that increases executive compensation. Combinations of sellers should have clear advantages to consumers. System executives and their boards should bear the burden of proof. Federal regulators and state attorney generals should be cognizant that rationales for cross‐market systems advanced by merging parties are unlikely to be operative or dominant in merger decision making. Policymakers should be careful about passing legislation that encourages hospitals to consolidate. Context There is a growing trend of combinations among hospital systems that operate in different geographic markets known as cross‐market mergers. Economists have analyzed these broader systems in terms of their anticompetitive behavior and pricing power over insurers. This paper evaluates the benefits advanced by these new hospital systems that speak to a different set of issues not usually studied: increased efficiencies, new capabilities, operating synergies, and addressing health inequities. The paper thus “looks under the hood” of these emerging, cross‐market systems to assess what value they might bestow and upon whom. Methods The paper examines recently announced cross‐market mergers in terms of their supposed benefits, as expressed by the systems’ executives as well as by industry consultants. These presumed benefits are then evaluated against existing evidence regarding hospital system outcomes. Findings Advocates of cross‐market hospital mergers cite a host of benefits. Research suggests these benefits are nonexistent. Additional evidence suggests other motives may be at play in the formation of cross‐market mergers that have nothing to do with efficiencies, synergies, or community benefits. Instead these mergers may be self‐serving efforts by system chief executive officers (CEOs) to boost their compensation. Conclusions Cross‐market hospital mergers may yield no benefits to the hospitals involved or the communities in which they operate. The boards of hospital systems that engage in these cross‐market mergers need to exercise greater diligence over the actions of their CEOs.

Gluing together a fragmented healthcare system for geriatrics will be hard. It's time for united action

“…The consolidation of the US hospitals and healthcare systems has been a health policy focus for over 30 years, and more recently, made more complicated by "cross-market" healthcare system mergers. 25,26,28 (Table 1) While at first glance one might think this trend could increase the "glue" for GCSLs because with greater operational scale, hospitals/healthcare systems could better resource GCSLs. But available evidence to support this notion is weak.…”

“…61 This form of service delivery is characterized by a few large healthcare systems that dominate regional markets and induces them to concentration on high "contribution margin" service lines to maintain financial solvency. 25,61 Given GCSLs lower contribution margins it's not surprising that they may struggle in this environment.…”

“…Some health economists ascribe this trend to the "lionization" of the Chief Executive Officer, and the "culture of growth" mindset among healthcare system boards of directors (Boards). 25 This perspective is linked to compensation packages for health system CEO's, in particular, and healthcare system senior management collectively. 70 While ultimately the responsibility for a healthcare system Boards of directors, CEO base salaries are usually benchmarked to the size of the clinical enterprise.…”

“…While mergers raised anticompetitive and antitrust concerns with Federal agencies, early consolidation was promoted by healthcare executives and Wall Street analysts as a means to achieve economies of scale, expand services networks, improve quality and accessibility, and prepare for managed care and capitation. 25 These ambitious goals were expressed as the "triple aim," for example, reducing per capita cost, improving population health, and improving the patient experience, or solving the "iron triangle," for example, reducing cost, improving quality, and increasing healthcare access. [55][56][57] The scale of US healthcare system consolidation is sizable.…”

“…More specifically, how our FFS financial incentives support disease specific and procedural based specialty care; disincentivizes multidisciplinary team based care; and creates conditions that incentivize healthcare systems to invest in profitable clinical services lines that justify and support hospital/healthcare system consolidation and growth mindset. [25][26][27][28][29][30][31] One may question the oversimplification that finances play an outsize role in limiting GCSLs dissemination, but we counter with this-if positive financial margins are not key decision and policy drivers, why has private equity invested in multispecialty physician practices, hospitals/healthcare systems, and long-term care settings in recent years? [32][33][34][35] It's not to lose money!…”