Better Solutions for Healthcare

Bigger But Not Better: Hospital Mergers Increase Costs and Do Not Improve Quality

The final verdict on hospital networks is in. Despite all of the self promoting ads in the media, hospital mergers increase costs and do not improve quality. The Federal Trade Commission’s (FTC) Director of the Bureau of Economics recently stated that when hospitals merge they face less competition and charge as much 40 to 50 per cent higher prices than if they had not merged or consolidated. The FTC has been challenging hospital mergers in the courts for some time and after a string of failures has won three cases over the past two years. It has also won its first-ever litigated case challenging a health system’s acquisition of a physician group. These court wins by the FTC have caused considerable anxiety among hospital executives contemplating mergers.

In 2012 the Robert Woods Johnson Foundation conducted an exhaustive review of studies on hospital consolidation. Their conclusions were:

  • Hospital consolidation results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets the price increases can be dramatic.
  • Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.
  • Hospital competition improves quality of care. This is true under both administered price systems such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however.

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