Hospital mergers have reduced annual operating expenses at acquired hospitals, and evidence from a study cited by the American Hospital Association shows quality and service improvements stemming from mergers. According to Charles River Associates, despite antitrust concerns from the Federal Trade Commission (FTC), hospital leaders believe that mergers are a better tool for achieving better care coordination and population health management than looser affiliations between parties.
An analysis of non-federal short-term acute care hospital mergers between 2009 and 2014 revealed a 2.5 percent reduction in operating expense per admission at the acquired hospitals, implying annual savings of about $5.8 million (derived from average annual operating expenses). Net patient revenue per admission also declined relative to non-merging hospitals, suggesting that mergers may reduce health care costs.
Interviews with hospital executives placed savings into three categories: scale-related savings from allocating fixed costs over a larger volume of patients, reductions in cost of capital, and standardized clinical processes. In particular, supply chain savings from group purchasing and reduced overhead following consolidation of back office services were cited as important cost-saving benefits of merging.
While the study was able to quantify some cost savings related to mergers, positive effects on quality were less obvious, despite executives stressing the impact of quality improvements following clinical standardization after a merger. Small improvements were observed in a decrease in the composite indices of 30-day readmission rates, 30-day mortality rates, and overall outcome, but the only statistically significant result was a 10 percent change in the readmission rate result. The authors admitted that the modest results may partially stem from difficulty in quantifying hospital quality.
The FTC asserts that improved care coordination and other benefits touted by merger supporters are not merger-specific and can be achieved through other means of association. Hospital leaders disagree based on experience showing that “looser affiliations” between parties fail to provide the necessary level of commitment and accountability to achieve the necessary cost savings and quality benefits to effectuate health reform. The interviewees opined that alliances between parties are not able to overcome the divide of being part of different systems, resulting in unwillingness to invest capital, reluctance to share intellectual property, inability to align incentives and create a common culture, and regulatory roadblocks on information sharing. The authors noted that successful loose affiliations are usually narrow in scope, limiting the cooperation to combining supply chain efforts or developing joint back office function collaborations (without sharing data between affiliates). If clinical areas are involved, they are usually limited to support services.