The COVID-19 pandemic likely will accelerate “one of the most concerning and constant trends” in U.S. medicine — the formation of large hospital chains that also acquire local physician practices, write three health policy experts in a February 2021 Viewpoint article in JAMA, “Overcoming the Market Dominance of Hospitals.”
Hundreds of independent physician practices and smaller hospitals lost revenue due to the pandemic’s disruption of routine medical care. These financial hits are likely to feed a drive for mergers and acquisitions that already had raised the cost of medical care, without improving its quality, they write.
“Consolidation has been a predominant business strategy for hospitals and physicians in the United States for decades,” write authors Dr. Robert P. Kocher, an adjunct professor at Stanford University; Soleil Shah, an MD candidate at Stanford; and Dr. Amol S. Navathe, an assistant professor of medical ethics and health policy at the University of Pennsylvania. “Hospitals consolidate to gain market share and use resulting leverage to charge higher prices to private payers or employers large enough to self-insure.”
These consolidations tend to raise prices for private health insurance providers without necessarily improving quality of care, according to a wide body of research published in major peer-reviewed research journals, including the New England Journal of Medicine, The Quarterly Journal of Economics and JAMA.
Meanwhile, the Federal Trade Commission (FTC) in January 2021 announced plans for a major study of the effects of physician group and healthcare facility consolidation between 2015 and 2020.
Hospital acquisitions have continued even amid the disruptions caused by the pandemic. The number of announced hospital transactions for 2020 was 79, surpassing the 74 reported for 2010, but marking a drop from 92 in 2019, according to a tally kept by Kaufman Hall, a merger consultancy based in Chicago. However, the average size of each transaction increased – with the seller size by revenue averaging more $800 million in the second quarter of 2020, according to Kaufman Hall. Another consulting firm, Deloitte, reported in December that it expected hospital mergers and acquisitions to continue in much of the United States.
Another trend to watch is vertical consolidation, in which hospitals gain dominance in their regions by acquiring a number of physician groups or other smaller medical clinics.
There are potential benefits for patients from hospital mergers, write economists David M. Cutler and Robert S. Huckman of Harvard University and Sayeh Nikpay of the University of Minnesota in a May 2020 Viewpoint article in JAMA.
“The benefit of consolidation will be facilities that do not close and communities that maintain sources of care,” the authors write in their article, titled “The Business of Medicine in the Era of COVID-19.”
“But there are likely to be costs as well. Consolidation among hospitals and between hospitals and physicians significantly increases health care prices,” they continue. “This trend will further increase health care spending at a time when the lingering effects of the virus will already be raising private insurance premiums.”
Over the years, the American Hospital Association, a health care industry trade group, has publicly criticized published research that has reported unfavorable results for consumers from hospitals’ mergers and acquisitions.
In covering the issue of hospital consolidation, journalists would do well to understand the basis of competing claims coming from the AHA and the findings in published papers from economists and other scholars.
Get to know the MedPAC report
A 2020 report from the Medicare Payment Advisory Commission (MedPAC) can be a good resource for reporters new to this topic.
Like journalists, lawmakers often get conflicting views about issues from different parties. MedPAC serves as a kind of on-call research firm for Congress. Due to MedPAC’s expertise, members of Congress sometimes order the commission to weigh in on the arguments being made in disputes on health policy, even on matters beyond Medicare’s payment rates.
In August 2018, the House Energy and Commerce Committee tasked MedPAC with reviewing what was known about the effects of hospital consolidation on costs.
“Through its public hearings, the committee has heard differing views from experts on the extent to which consolidation is a cost driver in the Medicare program and the degree to which payment policies of the Medicare program encourage such consolidation,” wrote then Energy and Commerce Chairman Greg Walden, an Oregon Republican, and colleagues, in a directive to MedPAC.
In response, MedPAC staff did a wide sweep of studies and reports on hospital consolidation.
MedPAC looked at the AHA’s commissioned research, which that hospital trade group released to the public and promoted. The AHA had paid the consulting group Charles River Associations to study consolidation. In September 2019, AHA released a report in which Charles River consultants concluded that the increased scale of operations resulting from hospital consolidation allowed for an estimated 2.3% reduction in annual operating expenses. They also said their analysis supported a claim of improved quality following mergers and suggested hospitals may pass along these savings to patients.
The MedPAC staff also examined more than two dozen articles published in economic and medical journals, including studies that had gone through peer review. (This means the journal asks other experts in the field to review the study before publication and offer comments and criticisms.) The MedPAC staff also examined papers produced by think tanks, testimony presented to Congress and work published by the National Bureau of Economic Research. The MedPAC staff looked as well at FTC’s reports. MedPAC’s extensive review included some of the works that the AHA had challenged in its press releases.
What did MedPAC conclude about the effect of hospital consolidation on prices?
“Taken together, the preponderance of evidence suggests that hospital consolidation leads to higher prices,” the MedPAC report states. “These findings imply that hospitals seek higher prices from insurers and will get them when they have greater bargaining power.”
Does consolidation lead to better or worse care for patients?
“Because the literature is mixed, we cannot make a definitive conclusion about the effect of mergers on the quality of care other than to say the effect is not large enough to result in consistent findings across studies,” according to the MedPAC report.
In this research roundup, we’ll introduce you to some of the papers cited in that MedPAC report. Getting acquainted with the published literature on hospital consolidation will help you cover this topic thoroughly.
“The academic research can be an important underpinning for these kinds of stories,” says Reed Abelson, a reporter at the New York Times who covers the business of health care.
Understanding these studies can help journalists press hospital officials who likely will present their proposed mergers and acquisitions as beneficial to patients, adds Dan Gorenstein, executive producer and host of the health care podcast Tradeoffs and a former health reporter for Marketplace.
Reading up on the research ahead of an interview may be especially helpful to local reporters who are newer to covering health care. It can be intimidating to confront officials of hospitals, which often are major employers in regions. They may have organized public relations staffers ready to promote their messages. But academic researchers and economists have largely drawn similar conclusions about the negative effects of hospital consolidation, he says.
“Journalists can take heart in that,” Gorenstein says. “They can familiarize themselves with the research and can use that to help them ask the tough questions that need to be asked.”
The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured
Zack Cooper, Stuart V. Craig, Martin Gaynor and John Van Reenen. The Quarterly Journal of Economics, February 2019.
Prices for common procedures were found to be 12% higher when performed at hospitals that so dominate a region that they can be classified as having a monopoly compared with hospitals in markets where four or more rival hospitals compete, conclude Zack Cooper of Yale University, Stuart V. Craig of the Wharton School, Martin Gaynor of Carnegie Mellon University and John Van Reenen, now of the Massachusetts Institute of Technology.
That’s one of the key takeaways from their research, published in an earlier form in 2015 as a National Bureau of Economics Research (NBER) working paper with the same title. (Note: this research received financial support from the National Institute for Health Care Management Foundation, which also supports The Journalist’s Resource.)
To study how hospital consolidation affected prices, the authors worked with data from the independent nonprofit Health Care Cost Institute (HCCI). Three of the nation’s largest insurance companies – Aetna, Humana and UnitedHealth – had provided claims information. This pool of data represented services delivered between 2007 to 2011.
The dataset used by the authors represented the largest national sample of private medical insurance claims ever analyzed by academics. As Margot Sanger-Katz and Kevin Quealy note in a 2015 New York Times article about this research, “there is no national database of all insurance claims, which would give us a complete and perfect picture of how health care dollars are spent.”
In their work, the authors of “The Price Ain’t Right?” also look in depth at prices for seven common procedures: hip replacements, knee replacements, cesarean sections, vaginal births, diagnostic colonoscopies, certain MRIs of lower-limb joints and coronary angioplasties, which are procedures done to improve blood flow in clogged arteries. In examining 366 hospital mergers and acquisitions that occurred between 2007 and 2011, they find prices increased by more than 6% when the merging hospitals were geographically close, but not when they were distant.
Hospitals with a monopoly on services had more cases involving set prices set as a share of their charges, the authors conclude. Hospitals in more competitive markets seemed more likely to enter into what are called prospective agreements with insurers, with set prices for services, often using Medicare prices as a reference point.
Note: The authors acknowledge limitations in their work, most notably a lack of data from Blue Cross Blue Shield plans. That’s a point raised as well by the American Hospital Association in the press releases it has posted criticizing the work of Cooper and colleagues, such as this one, “The Price Ain’t Right” Ain’t Right Again!”
Cooper and colleagues addressed some of the issues AHA raised in their own 2019 webinar, which coincided with the hospital lobbying group’s release of the Charles River Associates report.
In this webinar, Cooper and other economists walked through the results reported in their papers and their methods for examining the potential costs to consumers of hospital consolidation and their results. This webinar makes a nice introduction for those less acquainted with this topic. More detailed information on this study, including data visualizations, is available at www.healthcarepricingproject.org.
Changes in Quality of Care after Hospital Mergers and Acquisitions
Nancy D Beaulieu, Leemore S Dafny, Bruce E Landon, Jesse B Dalton, Ifedayo Kuye and J. Michael McWilliams. New England Journal of Medicine, January 2020.
Hospital mergers and acquisitions were associated in this study with a modest deterioration in patient experiences, as well as small and nonsignificant changes in readmission and mortality rates, the authors write in this comparative study by Nancy D. Beaulieu, Leemore S. Dafny, Bruce E Landon, Jesse B Dalton, Ifedayo Kuye, and J. Michael McWilliams, all affiliated with Harvard University at the time of publication.
Previous research showed hospital mergers led to higher prices paid by people with commercial insurance, but less was known about the effects on quality of care. To study how mergers and acquisitions affect quality, the authors devised a study comparing results on quality measures for hospitals that were part of consolidations against those for hospitals that had not.
The authors sought to do what is called a difference-in-differences analysis, a before-and-after natural experiment of sorts that allows researchers to study how an event that that’s already happened may have affected outcomes.
In trying to isolate whether hospital consolidation made a difference in the quality of medical care, the authors made their own version of active and control groups for the difference-in-difference analysis. They identified a pool of 246 hospitals that had been acquired in 198 transactions, and then another 1,986 hospitals to use as controls. They then looked at Medicare claims and data from the Centers for Medicare and Medicaid Services’ Hospital Compare site to check reported performance on four measures of quality of care. These included the rate of readmission after discharge and mortality as well as two composite measurements. One checked on what are called clinical-process measures, meaning it tracked how often doctors and nurses carried out expected tasks for patients such as making sure people were given the right antibiotic for pneumonia. The other composite measure was based on patients’ evaluation of their stays.
There was no significant differential change in 30-day readmission rates or in 30-day mortality between the two groups, the authors report. The researchers also find that a hospital’s having been acquired is associated with a modest differential decline in performance on the patient-experience measure.
Acquired hospitals had a significant differential improvement in performance on the clinical-process measure, meaning that doctors and nurses took expected steps in handling cases, but this could not be attributed conclusively to a change in ownership because differential improvement occurred before acquisition, the authors write.
Note: Melanie Evans of the Wall Street Journal wrote about this study in this January 2020 article, Hospitals Merged. Quality Didn’t Improve.
Medicare Spending after 3 Years of the Medicare Shared Savings Program
J Michael McWilliams, Laura A Hatfield, Bruce E Landon, Pasha Hamed and Michael E Chernew. New England Journal of Medicine, Sept. 20, 2018.
This study finds independent physician groups achieved greater savings when participating in a Medicare test program than did large health systems, which saw no improvement, on average, during the study period. This research challenged the prevailing assumption that large-scale consolidation would result in more efficient treatment of patients, thus reducing waste in health spending.
McWilliams worked with Harvard University colleagues Laura Hatfield, Bruce Landon, Pasha Hamed and Michael E. Chernew to examine spending for patients whose doctors participated in the Medicare Shared Savings Program, an initiative meant to better coordinate medical treatments and thus potentially save money for the government and for older Americans.
As part of this research, the researchers looked at the results for two kinds of accountable care organizations (ACOs). These are physician groups and health systems that have agreed to work with Medicare on ways to try to reduce unnecessary spending by making treatment more efficient. McWilliams and colleagues looked at results achieved for ACOs that had entered the program in three different years, 2012, 2013 and 2014.
The effect of hospital acquisitions of physician practices on prices and spending
Cory Capps, David Dranove and Christopher Ody. Journal of Health Economics, May 2018.
Hospitals’ acquisitions of physician practices led to an average price increase of 14.1% for services of doctors who shifted from independent practices to work for these organizations, write Cory Capps, a former staff economist at the DOJ’s antitrust division who now works at the consulting firm Bates White; and David Dranove and Christopher Ody, both of the Kellogg School of Management at Northwestern University.
The three researchers find variation among specialties, with prices for primary care physicians rising by 15%, for example, and those for care by cardiologists rising by 33.5%.
The authors drew these conclusions from an analysis of medical claims data from 2007 to 2013 from a data provider whose identity they agreed to withhold. In their paper, the authors explain the data came from claims made in states that represent more than 12% of the U.S. population. The average resident in these states was slightly older than the average American and had a slightly lower average household income, but the sample was otherwise demographically similar to the nation overall.
To track vertical integration in the hospital sector, the authors look at tax identification numbers in the claims data and what was then known as the SK&A database of physicians. (SK&A since has been acquired by the consulting firm IQVIA.)
The researchers did difference-in-differences analyses to see how the acquisition of physician practices affected prices. They compared pricing for patients seen at the hospital-acquired groups with pricing for patients of physician practices that had not been acquired.
They conclude that vertical integration of physician practices into hospitals was the most likely explanation for the 14.1% price increase reported in the paper.
One of the drivers of vertical integration, in this case the acquisition of physician practices by hospitals, are Medicare’s payment policies. The giant federal health program in some cases pays more for the same service if it is provided by a doctor affiliated with a hospital. Commercial insurers then look to these Medicare prices in setting rates.
“Thus, when a hospital acquires a physician practice, this can automatically trigger higher prices for the same procedure performed by the same physician at the same location. In the long run, private insurers may renegotiate these rates,” the authors write.
In their paper, the authors note that Congress acted in the Bipartisan Budget Act of 2015 to remove one incentive for new acquisitions of physician practices. Payments for certain hospital outpatient departments would not be made at rates higher than what Medicare paid independent physicians.
Note: In 2019, Capps presented a summary of this research paper to the Senate Judiciary Committee. Titled Your Doctor/Pharmacist/Insurer Will See You Now: Competitive Implications of Vertical Consolidation in the Healthcare Industry, this hearing also provides a good overview of this topic. There’s a recorded webcast on that Senate Judiciary webpage.
Physician Practice Consolidation Driven by Small Acquisitions, So Antitrust Agencies Have Few Tools to Intervene
Cory Capps, David Dranove and Christopher Ody. Health Affairs, September 2017.
This paper presents research showing a pattern of growth of large physician groups through transactions individually too small to draw scrutiny by the Department of Justice or FTC. For 2016, for example, the size-of-transaction threshold for reporting proposed mergers and acquisitions subject to antitrust enforcement was set at $78.2 million.
The authors describe this pattern of growth as “whale eats krill,” as opposed to the larger “shark eats shark” transactions that do trigger federal inquiries.
In their research, the authors used insurance claims from a data provider, whose identity Health Affairs allowed the authors to keep hidden due to a previous confidentiality agreement. The claims studied were made between 2007 and 2013 in several states and collectively contained information pertaining to 12% of the US population. The authors restricted their analysis of market concentration to nine large specialties: primary care, surgery, diagnostic radiology, obstetrics/gynecology, pediatrics, dermatology, gastroenterology, cardiology, and otolaryngology. These nine specialties accounted for roughly 75% of physician output in the claim database.
They also looked only at claims from people living in what are called Metropolitan Statistical Areas (MSAs), which federal officials have defined for many years as urban regions with populations of at least 50,000. In their work, the authors also used a commonly accepted measure of market concentration, known as the Herfindahl-Hirschman Index (HHI).
The average size of the largest practices studied, those with more than 101 physicians, rose from an average of 261.37 physicians in 2007 to 345.56 by 2013, a gain of about 84 physicians. On average, of those 84 additional physicians, roughly one-seventh came from acquisitions of practices with 11 or more physicians, while one-half came from acquisitions of small practices with 10 or fewer physicians and about one-third came from other channels such as direct hires.
In other words, the authors find that the substantial majority—about 85%—of the growth of these largest groups came from acquisitions of small practices with 10 or fewer physicians and direct hiring. Small acquisitions and hiring, which they describe as “whales eating krill,” were unlikely to draw antitrust scrutiny, raising the prospect of continuing consolidation without antitrust review, they report.
At this time, federal officials don’t have the resources to address piecemeal consolidation of physician practices, which can result in higher costs of medical care, according to the authors. They suggested that policymakers consider several steps for “to slow the formation of powerful physician groups in highly concentrated markets.” The agencies could lower a benchmark, known as the Hart-Scott-Rodino threshold, for cases where the FTC and DOJ would look at physician practice acquisitions. State officials also could play a larger role, the authors write.
Additional research and resources:
Consolidation by Any Other Name: The Emergence of Clinically Integrated Networks
M. Susan Ridgely, Justin W. Timbie, Laura J. Wolf, Erin Lindsey Duffy, Christine Buttorff, Ashlyn Tom and Mary E. Vaiana. Rand Corp. paper, 2020.
Ridgely and colleagues dive into the issues surrounding the emergency of clinically integrated networks (CINs), in which different medical services are bundled into organizations such a group of independent physicians who contract to jointly provide care and share profits. “There is no standardization of how CINs are structured or function, and there is only theory, but no evidence, of a positive effect on quality,” Ridgely and colleagues write. “CINs bear watching because their effects on price and quality are potentially as important as the effects of mergers and acquisitions.”
The Risks to Patient Safety From Health System Expansions
Susan Haas, Atul Gawande and Mark E. Reynolds. JAMA, May 2018.
Haas, a principal investigator of Ariadne Labs’ Project on System Expansion Risks to Patient Safety, and her colleagues examine the challenges for doctors and nurses as health systems merge. These include needing to get up to speed on new electronic health record systems, sometimes without enough planning having been done to aid them in this adaption. Hospital mergers can force doctors to quickly adapt to work in new practice sites, the authors write.
“When clinicians travel, they often receive little systematic orientation to their new setting, leaving them to practice with infrastructure, processes, teams, and a clinical culture that can vary in significant and unexpected ways from those at their home institutions,” Haas and her colleagues write in this Viewpoint article. “In the absence of guidance, physicians indicated that they have adapted to these new circumstances through trial and error, which can put patients at risk.”
Ariadne Labs is a joint center for health systems innovation at Brigham and Women’s Hospital and Harvard T.H. Chan School of Public Health.
Making health care markets work: Competition policy for health care
Martin Gaynor, Farzad Mostashari and Paul B. Ginsburg. Brookings Institution, April 13, 2017.
This report offers an overview of the concerns about consolidation in health care and includes suggestions for increasing and maintaining competition, including making it easier for doctors to stick with independent practices. JAMA also published a summary of this report as a Viewpoint article with the same title in 2017.
The authors are Gaynor, a professor at Carnegie Mellon University and a former director of the FTC’s Bureau of Economics; Mostashari, who served as national coordinator for health information technology in the Obama administration and then founded a start-up, Aledade, aimed at helping primary care doctors make their independent practices more efficient and competitive; and Ginsburg, who was founding executive director of the predecessor to the Medicare Payment Advisory Commission (MedPAC) and its current vice chairman.
Health Care Costs Institute’s Healthy Marketplace Index and Hospital Concentration Index
The nonprofit Health Care Costs Institute (HCCI) posts on its website detailed analyses of local medical costs and markets. HCCI’s Hospital Concentration Index offers a granular look at regions, while providing important context about variation seen in the United States in terms of hospital competition.
The Healthy Marketplace Index provides a broader look at how spending compares in different parts of the United States. In a 2017 article in Health Affairs, Understanding Health Spending: Lessons From The Healthy Marketplace Index, the staff of HCCI explain the kinds of comparisons that can be done with this online tool.
For more on covering this topic, see “Covering hospital mergers and acquisitions of physician practices: 3 tips from experienced health care journalists.”