According to a new study from the National Bureau of Economic Research, hospital mergers have led to higher prices for patients, increased unemployment, and reduced tax revenue. Advisory Board's Vidal Seegobin analyzes the impact of rising healthcare prices and the potentially hidden trade-offs for both organizations and employees. 

How consolidation and corporate ownership are reshaping healthcare

Do hospital mergers lead to higher prices?

For the study, researchers analyzed data from the Health Care Cost Institute, the Labor Department, and the Internal Revenue Service. Data from three of the country's larger health insurers was also used to track price changes after each of the 304 hospital mergers that occurred between 2010 and 2015.

Overall, researchers found that hospital mergers led to inpatient and outpatient prices increasing by 1.2% in the two years after a deal. Around 40% of the hospitals involved in mergers raised their prices by more than 5%.

This increase in prices also led to a decrease in the number of workers at a hospital. For every 1% increase in prices, an employer's headcount decreased by around 0.4%. For an average hospital that raised its prices by 5% following a merger, over 200 healthcare and non-healthcare jobs would be cut.

According to the study, the workers who were most likely to be affected by layoffs after price increases were those who earned between $20,000 and $100,000 a year. Because employers typically spend the same amount on premiums for each employee, a worker who earns $100,000 is less expensive than two workers who earn $50,000. On the other hand, the lowest-paid workers are often covered by Medicaid and aren't at as much risk of having their jobs cut.

"It's vital to understand that rising health care prices aren't just impacting patients. Rising prices are hurting the employment outcomes for workers who never went to the hospital," said Zarek Brot-Goldberg, an assistant professor at the University of Chicago and a co-author of the study.

The study also found that higher healthcare prices can lead to lower tax revenue. As healthcare prices increase by 1%, federal income tax revenue decreases by 0.4%. Unemployment insurance payments also increase by around 2.5%.

Commentary

The American Hospital Association (AHA) pushed back on the study, saying that the findings are based on "extremely limited and disparate data."

For their part, hospitals have argued that mergers create efficiencies and allow organizations to combine resources for more strategic investments and improve quality. Research has also shown that operating costs drop by an average of 4% to 7% at acquired hospitals after a deal.

"The fact is, individual hospitals affiliating with a health system can bring a range of benefits for patients and communities," said Molly Smith, AHA's VP for public policy. AHA also noted that mergers can expand services and prevent struggling hospitals from closing.

At the same time, regulatory scrutiny of healthcare transactions has increased, with the Federal Trade Commission (FTC) challenging recent acquisitions in California and North Carolina.

In addition, FTC and the Department of Justice (DOJ) last year finalized new merger guidelines that aim to limit certain types of consolidation. Under the guidelines, organizations would not be allowed to merge if doing so prevents a potential competitor from entering the market or reduces incentives to pay higher wages.

The guidelines also lower the necessary threshold for regulatory review to a minimum market index of 1,800 or an increase of at least 100 in a highly concentrated market on the Herfindahl-Hirschman Index. FTC and DOJ have also said they plan to study any mergers where a combined company holds at least a 30% market share — a concentration that many hospital mergers exceed.

"Clients are thinking earlier, longer and harder about antitrust risk, baking in a longer potential timeline, more scrutiny and risk in deals being cleared," said Alexis Gilman, a partner at Crowell & Moring who focuses on antitrust issues. "For deals that are in the new threshold of what is now called highly concentrated markets, those are the deals that are likely to cause a lot more second thoughts." (Goldman/Reed, Axios, 6/24; Hudson, Modern Healthcare, 6/25; Evans et al., Wall Street Journal, 6/23; Carbajal, Becker's Hospital CFO Report, 6/25; Smith, AHA News, 6/24)