Hospitals Merging at Fastest Rate Since 1990s

The biggest wave of hospital mergers since the 1990s has hospitals merging faster and in greater numbers than they have in years. In 2009, there were 50 merger deals; that number more than doubled to 105 in 2012. A consulting firm predicts that 20 percent of the hospitals in the United States may seek mergers in the next five to seven years. The rapid mergers are creating large super-regional hospital systems, which may result in higher health care costs. Larger hospital systems damage the ability of smaller and independent hospitals to compete. A large system has more negotiating clout with insurers; higher insurance premiums, co-pays, and out-of-pocket expenses may result for patients while the hospitals maintain profits.

Some hospitals are merging in response to the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which gives hospitals an incentive to keep patients healthy, rather than being paid on number of patients, tests, and procedures. Lower payments from the federal government and declining patient admissions have left many facilities struggling financially. This fundamental change in hospitals’ business model has led some hospital executives to believe a merger is the only way to stay open. Merged hospitals can reduce costs for clerical work, freeing up money to invest in electronic health records systems and physician practices to ensure patient health outside of the hospital facility. Consumers will be able to use the state exchanges created by PPACA to see differences among hospital prices, particularly between markets that have consolidated and those that have not. Due to geographic constraints, some people may not have a choice about using a large conglomerate.

Federal Action

The Federal Trade Commission (FTC) has increased its oversight of hospital mergers due to concerns about anticompetitive practices. The additional scrutiny has resulted in a handful of blocked transactions. In February, the Supreme Court allowed the FTC to challenge the merger of the only two hospitals in Albany, Georgia, despite one of the hospitals being under the auspices of the county hospital authority. The Court held that local governing bodies engaged in anticompetitive conduct are not immune to federal antitrust laws unless clearly authorized by the state. The two hospitals agreed to a court order barring them from further integration until the completion of a full trial on the merits before an administrative law judge. The FTC has also exercised its authority to place limits on hospital acquisitions to ensure fair competition, and to restore competition following a merger.

Whether the mergers will increase remains to be seen–implementation of PPACA and FTC oversight will certainly play a role in determining whether this is just the beginning of a merger boom.