Hospital chains keep getting bigger

June 3, 2013

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, and read previous columns here.

In Crawford County, Ohio there two hospitals that serve 43,000 residents of the largely rural area. There is Bucyrus Community Hospital, a 25-bed hospital in the county's largest city (Bucyrus, population 12,362). Twelve miles away is Galion Community Hospital.




Back in 2010, this all was about to change. Bucyrus Hospital filed for bankruptcy and nearly went out of business - until Galion Hospital swooped in and purchased its competitor.

"We thought we could make them both work better," Jerry Morasko, president of Avita Health Systems, the newly-named network in Galion and Bucyrus. "Ours really was a success story."

The American Hospital Association brought Morasko to Washington on Monday morning to talk a small group of journalists about hospital mergers. As health policy experts have increasingly worried about a wave of hospital consolidation, the hospitals' trade association wanted to make the case that growing integration of hospital practices is a positive trend - one with the potential to drive prices down, rather than up.

First, it's helpful to review what's been happening in the hospital industry in recent years. The sector has seen a wave of consolidation, with big hospital chains buying up smaller facilities. Analysts at Booz & Company counted, in a recent report, over 100 hospital mergers and acquisitions in the past year alone.


This lines up with data that the American Hospital Association released Monday. A study it commissioned, conducted by the Center for Healthcare Economics and Policy at FTI consulting, counted 551 hospital acquisitions between 2007 and 2012.

The vast majority involved hospitals like Bucyrus. Hospital chains aren't necessarily merging with other hospital chains. Instead, they appear to be buying up small, stand alone facilities. The average number of hospitals acquired per transaction is, according to the AHA data, 1.7.

The worry about hospital consolidation has everything to do with prices. If hospitals band together in a specific city or region, the thinking goes, they can demand higher prices from health insurance plans.

"Hospital consolidation generally results in higher prices," Martin Gaynor and Robert Town concluded in a 2012 data review, funded by the Robert Wood Johnson Foundation. "This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent."

When asked directly about the RWJF study, American Hospital Association General Counsel Mindy Hatton made two points. The first was that most mergers aren't actually happening in especially concentrated health care markets. Ninety-one percent happened in geographic areas where there were four or more competing hospitals.

Second, Hatton contended that it wasn't necessarily fair to put too much emphasis on the studies that show prices increasing post-merger.

"Some show small increases and some show declines," she told reporters. "You also have to look at the offsetting benefits and the really significant savings achieved through realignment."

The data in the RWJF paper does overwhelming point toward price increases after a merger. It reviewed five studies that looked at hospital prices post-merger. There was one, conducted in 2011, that showed one insurance plan experiencing a price decrease after a hospital merger. The rest shows increases.

The case the hospitals make though is that there are benefits to hospital acquisitions that go beyond potential price increases. When two hospitals are part of the same system, there's more ease in transitioning patients and managing their care.

Economies of scale start to develop: A hospital system might, for example, be able to purchase an electronic health records system to serve all its member facilities that a small, rural hospital couldn't afford on its own.

Morasko cited a few of the advantages to running both the hospitals in Crawford County, rather than just one. The hospital chain has a smaller executive branch. "Instead of two CEOs and two CFOs, we just have one of each," he says.

The hospitals have an easier time recruiting specialists now that he can offer a higher patient volume; the new hospital system recently brought on its first nephrologist, a specialty that focuses on kidney diseases. Before, Crawford County residents had to drive an hour and a half to Columbus for certain specialty services.

More specialists on staff means more medical care and increased demand for health care. Employment at Avita Health Systems has increased 30 percent since the merger, according to Morasko. Patient volume has gone up, too.

"It's really enhanced our abilities at both hospitals," Morasko says.

The academic research suggests that a merger like this one may well lead to price increases. The case Morasko seems to make is that those increased costs also come with benefits: More services in an area that has typically had less access to specialty care. The big question for health policy, then, is whether those new benefits are worth the price.

KLIFF NOTES: Top health policy reads from around the Web.

How colonoscopies explain America's high health care costs. "They are the most expensive screening test that healthy Americans routinely undergo — and often cost more than childbirth or an appendectomy in most other developed countries. Their numbers have increased manyfold over the last 15 years, with data from the Centers for Disease Control and Prevention suggesting that more than 10 million people get them each year, adding up to more than $10 billion in annual costs." Elisabeth Rosenthal in the New York Times.

Obamacare could be good for entrepreneurs. "By guaranteeing that individuals can purchase comprehensive and affordable insurance plans, the law will allow would-be entrepreneurs to leave their corporate jobs without worrying that they could become uninsured. The study estimates that about 1.5 million more people will start their own businesses after the law’s major provisions kick in next year." Margot Sanger-Katz in National Journal

The shocking truth about rate shock. "That’s why the law is expected to insure almost 25 million people in the first decade: It makes health insurance affordable and accessible to millions who couldn’t get it before. To judge it from a baseline that leaves them out — a baseline that asks only what the wealthy and healthy will pay and ignores the benefits to the poor, the sick, the old, and women — well, that is a bit shocking." Ezra Klein in the Washington Post. 

 

 

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