Is Consolidation the Answer?
The RFS Journal Club debates the pros and cons of one of the biggest trends in health care today.
Despite the Federal Trade Commission’s anti-trust efforts, hospital consolidation continues to grow. Between 2007 and 2012, 835 hospitals were involved in 432 merger-and-acquisition deals, with another 95 occurring in 2014. Sixty percent of hospitals are now part of a larger health care system, and it is predicted that up to 20 percent of all U.S. hospitals will be involved in a merger in the next five years.
What is the driving force behind this consolidation? Is it to improve value? Improvements in value should be the aim for any change in health care. And, as we know, value can be defined as an equation in which quality is divided by costs.
In a large conglomerated health care system, quality can theoretically be increased throughout the system with standardization. Outcomes can potentially improve by concentrating patients in high-volume centers. Based off the hub-and-spoke model, community hospitals can feed into the larger tertiary center. However, improvement of quality, safety, and patient outcomes can be achieved in collaborations formed by competing hospitals without consolidation. During the latest RFS journal club, Frank J. Lexa, MD, MBA, postulated that quality is likely not the driving force behind consolidation. Instead, the push towards consolidation might be due to a perceived general economic sense that it will improve spending. However, hospital mergers may conversely result in increased prices and utilization.
This drive for consolidation is not unique to hospitals. Radiology practices also saw an accelerated tendency to get bigger through mergers and joint ventures not too long ago Dr. Lexa stated. This trend was driven by a number of factors. A large practice allows for 24/7 subspecialty coverage and freedom to pursue non-interpretive activities like teaching and other academic involvements. In addition, a larger practice will have greater influence over maintaining hospital contracts. All these factors can lead to a more stable practice.
In larger practices, standardization becomes an increasingly important factor. Specifically in radiology, standardization of imaging protocols among consolidated facilities can improve workflow and clinical processes. The overall practicality of standardization must be assessed thoroughly in each individual circumstance. Universal protocols need to take into account differences in technology, patient population, and techniques. Innate differences between outpatient imaging centers, community hospitals, and tertiary care centers can sometimes make standardization difficult and even impractical.
Whether it be a radiology practice or a community hospital, the process of consolidation can be a challenging endeavor. Subtle differences in missions can hinder a successful merger. Lexa described examples of hospital mergers that failed simply because of cultural incompatibilities. Consolidation requires close attention to differences in institutional cultures, staff personalities, and patient dynamics.
In addition to the difficulties associated with mergers, a consolidated health care system may not improve outcomes or costs at all. In fact, no studies to date have shown that mergers lower costs. Large conglomerated hospital systems without competition have the power to set prices and influence insurance reimbursement. Four studies evaluating hospital mergers demonstrated a 20 to 45 percent increase in medical prices for patients. A 2012 study of hospital mergers in California demonstrated an associated increase in utilization and a rise in inpatient mortality. Factors contributing to these unfavorable results are thought to be unique to the infrastructure of a single conglomerated health care entity. A single institution serving a large geographic area might force patients to travel farther for care, leading to more intensive procedures. In this case, utilization might paradoxically be incentivized.
A hospital that owns expensive equipment might be more likely to refer for these more costly in-system options. There can be considerable consequences when the care of a large population is solely in the hands of a single conglomerated chain of hospitals. Rather than having the broad range of services that comes along with the variability amongst individual institutions , treatment options might be limited and offered based off profitability in one colongmerated system. In addition, a single hospital system covering a large geographic area that fails financially can significantly impact that well-being of a large patient population, especially in more rural areas.
Hospital consolidation may eliminate diversity and ultimately competition. Historically, competition has been the driving force behind innovation. During the latest journal club, Lexa offered the example of Apple and Windows. Without the decades-long competition between these two Silicon Valley giants, we might not have game-changing technology, like the iPhone. The United States might never have landed on the moon without competition that drove technological innovation between the U.S. and Russia. Some studies have shown that competitive marketplaces are associated with improved quality and, in the context of health care, lower patient mortality.
As health systems seek to chart new courses, the big question remains the same: What is the overall value of consolidation? The answer is still unclear, but nevertheless there is a continued movement towards consolidation. More data needs to be collected, and organizations like the Neiman Health Institute continues to investigate.
By Travis Fuchs, MD