Chicago-area hospitals have merger fever. Is it good for patients?
By Lisa Schencker
October 25, 2017
Chicago-area health systems have merger fever, excitedly scooping up hospitals and joining forces in what they say is an effort to improve patient care and lower industry costs.
But is it good for consumers’ care or pocketbooks? Not always, according to research and real-life examples.
The list of Chicago-area hospitals teaming up with one another is ever-expanding. Just this month, Loyola Medicine announced plans to buy MacNeal Hospital in Berwyn and Rush said it would acquire Little Company of Mary Hospital and Health Care Centers.
Presence Health agreed in August to become part of Amita Health. University of Chicago Medicine finalized its merger last year with Ingalls Health System. Northwestern Medicine is still in talks to add Centegra Health System in the northwest suburbs.
Illinois, in fact, was among the top three states in the year’s third quarter for hospital deal announcements, along with New York and Pennsylvania, according to Skokie-based advisory and consulting firm Kaufman, Hall and Associates. Each had three transactions.
In Illinois, the leaders of Loyola, Rush, Northwestern, Amita and University of Chicago Medicine have all said acquiring more hospitals will help them improve patient care by giving more people in the acquired hospitals’ communities access to their services and, in some cases, lowering costs for the hospitals.
“I don’t see this as anything but a win for consumers,” said Amita President and CEO Mark Frey, in August, of Ascension’s plans to acquire the Presence hospitals, making them part of the Amita system.
But data show that hospital consolidations don’t always lead to lower prices or better care.
In some cases, mergers might financially stabilize hospitals so they can better serve their communities, said Martin Gaynor, a professor economics and health policy at Carnegie Mellon University. Presence and Little Company of Mary, for example, had faced financial struggles before they agreed to be acquired.
But generally, hospital consolidation results in higher prices for insurance companies, and those costs can be passed along to consumers through higher premiums and other payments, said Gaynor, who wrote, with a co-author, a 2012 review of studies on the issue, published by the Robert Wood Johnson Foundation. Insurers could pass those costs onto employers, which could affect wages or lead to higher premiums or skimpier benefits for workers.
When hospitals merge in markets that already have few competitors, prices can increase by more than 20 percent, according to Gaynor’s review.
“That is the story that plays out over and over and over again in the data,” said Amanda Starc, an associate professor at Northwestern University’s Kellogg School of Management.
The Chicago area already has seen a case of increased prices after a hospital merger.
In 2007, seven years after NorthShore University HealthSystem (then called Evanston Northwestern Healthcare) acquired Highland Park Hospital, the Federal Trade Commission ruled the deal was anti-competitive and resulted in higher prices for insurers and consumers. But the FTC allowed NorthShore to keep the hospital as long as it accepted guidelines in negotiating contracts with health insurance companies.
Some hospital systems, like those in the Chicago area, may now be setting their sights on suburban, community hospitals in hopes of avoiding heavy antitrust scrutiny, Starc said.
They may be trying to avoid a situation like the one Advocate Health Care and NorthShore recently faced when they tried to merge. Earlier this year, the two systems walked away from plans to unite after a federal judge ruled in favor of the FTC, which challenged the deal. The FTC alleged the merger would have reduced competition in the northern suburbs because the systems had geographically overlapping hospitals. That, the FTC said, would have led to higher prices for health care and lower incentives to improve the quality of care.