Trending: Boston Hospital Acquisition Shines New Light on the Pitfalls of Mergers and Consolidation

A recent, high-profile hospital acquisition in Massachusetts has sparked new debate about the continued trend toward consolidation among U.S. hospitals. Boston-based Partners HealthCare, already the largest health provider system in the state, made a bid earlier this year to acquire South Shore Hospital and its affiliated physician groups. An analysis of the proposed acquisition by the Massachusetts Health Policy Commission found that the merger could result in reduced market competition in the affected areas, leading to an increase in hospital charges of an estimated $23-26 million. The Partners development is just the latest in a growing trend of hospital mergers and acquisitions—a trend with troubling implications for health care consumers and health care costs.

Trend toward consolidation shows little sign of slowing; a mixed bag for consumers

In 2012, the number of hospital mergers was double what it was in 2009. Increasingly, they involve multiple hospitals in a single merger. This trend continued in 2013. An October report from the Alliance for Health Reform noted that, in 2013, 78 percent of hospitals were either exploring a merger or in the midst of one.

As we’ve previously observed, hospital mergers present a complex set of challenges for consumers. Research consistently demonstrates that consolidation can lead to significant increases in the cost of hospital care, which are often passed on to consumers in the form of higher monthly insurance premiums. These rising prices stem, in part, from the greater negotiating power that large hospital systems have in a consolidated market.

At least some of the trend toward consolidation can be attributed to the Affordable Care Act (ACA), which advances the goal of health care providers working together to coordinate patient care. The law contains numerous provisions designed to encourage care coordination and integration among providers by piloting payment and delivery reforms that can increase coordination and improve quality, such as Accountable Care Organizations (ACOs).

While better coordination among providers and improved quality and efficiency are often touted as benefits of consolidation, in practice, the results are mixed. Research shows that, despite notable exceptions, most hospital mergers have not yielded the kind of full clinical (not just financial) integration necessary to support both better care and lower costs for consumers and the health care system.

Boston example spotlights the risks of hospital mergers

Last month, the New York Times editorial board held up the Partners HealthCare acquisition as a cautionary tale of the risks that big hospital mergers pose for states. The editorial points out the “no-looking-back” nature of mergers—once hospitals merge, these mergers are incredibly difficult to undo.

In fact, Partners HealthCare itself was born out of the 1994 merger of two of the largest and most prestigious hospitals in the Boston area—Massachusetts General Hospital and Brigham and Women’s Hospital. Tellingly, numerous reports from the state’s attorney general on the effects of that merger demonstrated that it significantly increased hospital prices—increases that were unrelated to the quality or complexity of care delivered.

Following the 1994 merger, a negotiation took place between Tufts Health Plan, a regional insurer, and Partners that revealed the immense negotiating power a large hospital system like Partners has in consolidated markets: When Tufts refused to pay what it felt were unnecessarily high prices, Partners announced that it would no longer accept Tufts Health Plan. Recognizing that its financial viability was at stake, Tufts was forced to accept Partners’ terms.

In the case of Partners’ most recent merger, the state did try to blunt the fallout, at least temporarily: In late June, after a protracted negotiation, the Massachusetts Attorney General’s office and Partners HealthCare reached an agreement to allow the acquisition of South Shore Hospitals in exchange for temporary restrictions on price increases and additional acquisitions.

What can be done to mitigate the ill effects of hospital consolidation?

Given the continued trend toward more hospital mergers and consolidation, advocates and policymakers are rightly concerned about the negative effects that consolidation can have on the quality and cost of health care.

The Federal Trade Commission (FTC) has become more aggressive in challenging hospital mergers on antitrust grounds, with some success. But, while antitrust challenges like these highlight the need to bring more competition to the market, they’re not the only solution. Tools that enhance price transparency, including all-payer or multi-payer claims databases, hold promise for increasing transparency, and, by extension, scrutiny (and a resulting check on costs for consumers) in the market. Other tools, such as reference pricing and rate review, can also increase transparency within the market.

The changing landscape of health care delivery systems have prompted big questions about how best to improve the quality and delivery of health care and lower health care costs: Is ensuring market competition the best way to deliver better care at a lower cost? Or does provider collaboration and integration—and, by extension, consolidation, often in the form of mergers—represent our best bet?

While we may not know the answer yet, cases like the Partners acquisition prove that the trend toward consolidation shapes the delivery of care in profound ways. It will be increasingly important that advocates and policymakers identify solutions that reduce the potential negative effects of consolidation.