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Experts Warn of ‘Too-Big-to-Fail’ Hospital Mergers

Up to 20% of hospitals will seek mergers over next 5 years

Hospital mergers that create monopolies in their service areas can drive up costs and reduce quality while presenting a risk for a government bailout if they become “too big to fail,” according to health policy experts at Johns Hopkins University.

In a commentary published in JAMA, the researchers called on the Federal Trade Commission to be more aggressive in its review of hospital mergers, particularly when the mergers could create a single dominant hospital system in one geographic area.

“What we are saying is that the basic principles of economics hold true for medical pricing in the same way they do for any other industry,” lead author Marty Makary, MD, MPH, told HealthLeaders Media.

In their article, Makary and his co-authors noted that hospital consolidation has accelerated at an “alarming” rate over the past 5 years, with 95 hospital mergers occurring in 2014 –– the most since 2000.

The researchers cited studies showing that as many as 20% of hospitals will seek mergers in the next 5 years. They reported that none of the 306 hospital referral regions in the U.S. is considered “highly competitive” and that nearly half are “highly concentrated.”

Makary drew parallels between hospital consolidation and the consolidation of the banking industry, which required a taxpayer bailout when it collapsed during the recent recession. He said that such a scenario could occur when some geographic regions are controlled by one health system.

“If a bank goes out of business because of bad decisions and the consequences affect everyday businesses and consumers –– and that is what happened –– as a society, we decided that because of that, it is justifiable to use taxpayer dollars to bail out the bank. That is why we created the concept of ‘too big to fail’ as being something that there is a low appetite for in the United States. We have created health care systems that are so large that they dominate an entire state and may be too big to fail.”

Makary rejected the assertion that hospitals are consolidating to protect themselves from consolidation in the health insurance sector.

“There is a huge difference,” he said. “While we still have a small group of geographically large insurers, the competition at the local level is still fierce. That competition keeps the market healthy and keeps pricing reasonable for the consumer.”

“But when you get sick,” he said, “if there is only one hospital system in a giant geographical region, the patient is far less likely to choose care far outside that region than they are to choose a different health insurer when they are shopping.”

Makary also challenged the idea that hospitals need to consolidate to prepare for integrated care and population health. That claim, he said, relies on “metrics that are far too immature to be meaningful for value-based goals. The enthusiasm for ACOs [Accountable Care Organizations] has outpaced the maturity of the metrics for patient outcomes.”

He said there is evidence that benchmarking hospital quality scores at the state and regional level has had a significant effect on improving quality –– and that does not require consolidation.

Makary stressed that he is not rigidly opposed to consolidation. “The prerequisite is that there remains competition,” he said. “There are no pricing concerns when you have mass consolidation of a system competing with another system. The concern is in a geographic region where patients don’t have feasible options to get care elsewhere.”

Sources: HealthLeaders Media; August 19, 2015; and JAMA; August 13, 2015.


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