Consolidation Key to Shoring Up America’s Hospitals

America may finally be emerging from its long COVID-19 winter as the omicron variant wanes, but the healthcare industry has a long way to go before it will be able to return to anything resembling a pre-pandemic normal.

The strains placed on the healthcare system by the pandemic have exposed significant vulnerabilities that persist to this day. Record staffing shortages have led to rapidly rising wages and an explosion in the use of personal protective equipment (PPE) expenditures that have left hospitals scrambling to cover unexpected costs. A growing tendency for Medicare and Medicaid to offer insufficient reimbursements for treatments combined with a halt to profit generating elective surgeries have left hospitals to grapple with significant revenue shortfalls.

While Congress has directed funds towards relief for hospitals, this short-term solution has proven uneven. Some providers have been unable to access government funds due to confusing rules and what little money these providers were able to secure was sometimes not enough to cover even the most basic and minimal of pandemic related safety expenses. Such COVID relief funds also do nothing to counteract longer-term hospital funding trends, which indicate a decrease in private and public funding for hospitals. Ultimately, overcoming these challenges will require a broader shift in the hospital industry and more collaborative effort between medical facilities.

COVID Spurs Hospital M&As

In response to these dual challenges, the healthcare industry as a whole has undergone a wave of consolidation to adapt to these broader headwinds. In 2020, during the peak of the pandemic, 79 hospitals underwent some form of consolidation. This trend continued into 2021 when the healthcare industry saw larger, more impactful independent hospitals and health systems merging into even stronger networks of care providers in order to maintain and expand access to care.

There are many ways in which hospital mergers benefit America’s economy and healthcare consumers. As hospitals look to reduce costs, one of the easiest ways to do so without affecting patient outcomes is to streamline administrative operations. Merging into larger healthcare systems allows smaller hospitals to outsource such functions and to reinvest those dollars into patient care. For smaller facilities that merge into larger healthcare networks that also often means access to new sources of capital. This money, in turn, can be used to upgrade facilities and offer new state-of-the-art treatments to patients, resulting in yet more efficiencies and further cost savings.

Most importantly for supporters of the free market is the fact that hospital systems have been able to undergo such consolidation without sacrificing the benefits of market competition or patient care.

Costs Significantly Lower

In fact, a recent study from Charles River Associates found that “hospital acquisitions are associated with statistically significant decreases in both cost and revenue.” On average, the study found that acquired hospitals reduced their net patient revenue by $10.7 million per year, suggesting that prices are lower at hospitals after mergers. Similarly, a study by Watson Health and the Maryland Agency for Healthcare Research and Quality found that after mergers, rural hospitals saw improvements in mortality rates of a number of critical conditions including heart failure, stroke, and pneumonia indicating improvements in patient care post acquisition.

Despite such evidence, opposition to healthcare mergers remains. The Federal Trade Commission (FTC) under Lina Khan has shown itself to be skeptical of consolidation in general and the healthcare industry has not been exempt from such skepticism.

Unfortunately, the FTC’s enforcement of “health care competition” is based on an outdated model of healthcare as well as U.S. anti-trust laws that fail to take into account the collaborative nature of the modern healthcare system. The FTC would be wise to remove these unnecessary barriers to consolidation and to sweep aside such outdated information and biases.

In light of the increasing difficulties healthcare facilities are facing, leaders in Washington and regulators at the FTC would be wise to recognize that mergers are often the best and sometimes only option to allow hospitals to continue to serve patients in a cost-effective way.

While every merger should be subjected to an appropriate amount of scrutiny to ensure there is no harm to the consumer, the evidence demonstrates that there are many benefits for hospital mergers that must not be overlooked.

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