How Healthcare Mergers, Acquisitions Impact Practice Management

Impact on Healthcare Costs

Hospital groups, including the American Hospital Association (AHA), have stood their ground in asserting that mergers and acquisitions help reduce hospital costs.

In 2021, AHA updated its analysis of hospital transactions and found that mergers and acquisitions were associated with a 3.3 percent reduction in operating expenses between 2009 and 2019. Based on this figure, acquired hospitals could save $9.5 million each year.

Hospital mergers were also linked to a 3.7 percent decrease in revenue per admission, amounting to savings of $10.7 million per year.

Certain types of mergers, like private equity acquisitions of hospitals, also led to lower hospital costs, a Health Affairs study found. Following private equity acquisitions, hospitals saw an average $432 reduction in cost per adjusted discharge and a 1.78 percentage point increase in operating margins.

Private equity acquisitions face their own set of criticisms, including claims that these deals favor short-term returns rather than long-term investments that could boost population health.

A separate analysis of private equity-acquired short-term acute care hospitals found no change in 30-day episode spending for five common medical conditions following an acquisition. While this data disputed the claim that private equity investments increase healthcare spending, it did not necessarily show any benefits of the transactions.

Despite instances showing the financial benefits of hospital mergers, several cases show hospital consolidation leading to increased healthcare prices.

When hospitals merge, it diminishes market competition. Highly concentrated markets give hospitals the power to charge higher prices for services and negotiate higher prices from health insurance plans, according to AHIP. With fewer options for healthcare services in a concentrated market, patients may have no choice but to pay the steeper costs.

Research from the Washington Policy Center found that although hospital mergers or acquisitions may provide financial support to struggling facilities, hospitals tend to create monopolies and increase costs following the deals. The Kaiser Family Foundation (KFF) reinforced this notion with data showing that horizontal and vertical consolidation among physicians led to higher prices.

A Health Affairs study from May 2022 found that vertical consolidation between physicians and large health systems led to a 12 percent increase in primary care physician prices and a 6 percent increase in specialist prices.

Changes in Quality of Care

The impact healthcare mergers and acquisitions have on healthcare costs is not the only thing there is conflicting evidence on. The overwhelming amount of merger data reveals that hospital transactions either do not impact patient care quality or lead to poorer outcomes. In other words, most data shows mergers do not improve clinical quality; it remains neutral or deteriorates.

While many healthcare transactions promise better care coordination and improved access to services, there is little evidence that consolidation enhances care quality.

Data from Harvard Medical School found that hospital acquisitions were associated with decreased performance on the patient-experience measure of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey and no changes in 30-day readmission or 30-day mortality rates.

“Our findings call into question claims that hospital mergers are good for patients—and beg the question of what we are getting from higher hospital prices,” J. Michael McWilliams, senior author of the study, professor of medicine at Harvard Medical School, and a practicing general internist at Brigham and Women’s Hospital, said.

Another study found that private equity acquisitions helped lower mortality rates for acute myocardial infarction patients, but patients with other conditions experienced no change in comorbidity burden, mortality, readmission rates, or inpatient length of stay.

While most data points to no improvements in care quality after mergers, a few instances contradict this.

For example, rural hospitals that underwent mergers produced better patient outcomes than those that remained independent. However, many rural hospitals frequently face the risk of closure, highlighting circumstances in which a merger may generate benefits as it allows a health system to keep its doors open.

Another outlier included improved patient outcomes resulting from a hospital merger between Lutheran Medical Center and NYU Langone. The merged health system, NYU Langone Hospital-Brooklyn, saw lower in-hospital mortality rates and fewer hospital-acquired infections.

Effects on Healthcare Workforce

The effect mergers and acquisitions have on healthcare staff may often be overlooked. But in a time when many hospitals and physician practices are facing workforce shortages, it is essential to recognize how these deals impact employees.

Data from July 2021 revealed that providers going through a merger or acquisition were less likely to be willing to stay at their organization and more likely to experience burnout.

Mergers and acquisitions can often lead to workflow disruptions and organizational changes that increase workloads and burden for staff. Technological transitions, such as new EHR implementation, can also contribute to staff frustration, as additional training is likely required.

Some evidence also points to lower wages. Research from the NIHCM Foundation found that wages were 4 percent lower for skilled workers and 6.8 percent lower for nurses and pharmacy workers following a hospital merger.

What Does This Mean?

There is no single answer for how healthcare mergers and acquisitions impact practice management for hospitals and provider groups due to the mixed results.

Antitrust agencies have consistently taken action to block any mergers they believe will increase healthcare costs and reduce market competition.

On the other side, hospital groups like AHA and the Federation of American Hospitals (FAH) have called on the Department of Justice and the Federal Trade Commission to ensure merger guidelines are fair and accurate.

The trade organizations have requested minor guideline changes, including better consideration of the benefits hospital mergers can generate.