It is now common to see headlines like “When hospital prices go up, local economies take a hit” (Wall Street Journal), “Hidden hospital prices harm patients: Can this new pricing tool make a difference?”(USA Today) or “Hospital mergers and health care price increases: A primer for reporters” (from the Association of Healthcare Journalists). And yet, large mergers and acquisitions (M&A) have continued at a torrid pace. Robert Pearl calls it a “conglomerate of monopolies” pointing out that “the 40 largest health systems own 2,073 hospitals, roughly one-third of all emergency and acute-care facilities in the United States.” Let me summarize our recent publication in the Journal of the American College of Surgeons.1 My co-authors are David Way, David Hoyt and Chris Ellison. I will be using the term M&A as a proxy for hospital and health system consolidation/integration, and for simplicity will include horizontal (two or more hospitals joined) or vertical integration (hospital and physicians merged) within M&A.
We systematically reviewed 384 of the 1,297 articles discussing healthcare M&A from 1990–2024. We then selected 37 studies, which measured at least one of three measures of value: quality, price and cost/spending. Some 77% of studies measuring quality of care showed either no change or lower quality of care after M&A. Of the six showing improvement, five showed better care management processes (CMPs) (for instance health screenings, patient satisfaction or more nurse clinicians), and only one showed improved mortality. Some 93% of studies demonstrated increased prices, and 81% focusing on healthcare spending showed either higher cost or no change.
Hospital and health system M&A has continued to trend upwards, purportedly to create operational, strategic and financial value. While the concept of M&A can be traced back to the Mayo Clinic in 1892, “corporatization” has now advanced even in states where it is banned by law due to weak enforcement efforts. Health systems now own about 68% of all hospitals in the U.S., and the largest health systems own one-third of all hospitals in the U.S. Furthermore, hospitals now employ 55% of U.S. physicians and another 23% are employed by other corporate entities.2
The premise of M&A in healthcare includes: cost savings (economy of scale, elimination of redundancies, better asset leverage), better quality of care (expertise due to access to talent, innovation and best practices, better care coordination and continuum of care, improved outcomes), financial benefits (greater revenue, value chain integration, access to capital and new markets), intellectual capital (health and technology workforce) and stronger branding.
We report that the premise that M&A would result in cost savings by relieving competitive pressure and improving price-cost margins has not been convincingly demonstrated. Furthermore, increased market share, particularly in concentrated markets, has not led to significant and consistent cost savings. When M&A has shown savings partly because of strong negotiating positions with insurers, the savings have reportedly not been passed to commercially insured patients, resulting in higher premiums for the patient and employers. In one study, the average Affordable Care Act (ACA) marketplace premiums increased from 5% to 12% because of higher concentrations of healthcare organizations competing for the same patients.3
Similarly, M&A largely failed to show consistent and significant relationships between M&A and improved quality of care. In most studies we reviewed there was no change after M&A and, in some cases, system ownership may have reduced the care quality. An interesting question is whether the quality of care improves after “vertical integration” (physicians becoming hospital employees). One such study compared 803 “switching hospitals” (hospitals changed to employing physicians) to 2,084 non-switching hospitals, looking at common measures such as risk-adjusted hospital-level mortality rates, 30-day readmission rates, length of stay, etc. Matched for year and regions, two years later no improvement was identified between the two groups in four quality metrics.4 Where there has been improvement in “quality,” this has been almost entirely due to process measures, not true outcome metrics that surgeons are used to.
A recent study by the National Bureau of Economic Research also concluded, after reviewing 304 hospital mergers between 2010 and 2015, that hospital mergers led to higher inpatient and outpatient prices for patients, with 40% of hospitals involved in mergers increasing prices by 5% or more. The American Hospital Association disputed their findings. While we did not measure the extent of price increases, a 20–40% increase in prices following horizontal integration and a 15–33.5% increase after vertical integration have been reported. The Urban Institute tied hospital concentration to debt on household financial well-being and health across the U.S. They report that medical debt as indicated by credit card reports in 2022 has been a major burden for almost 27 million U.S. consumers.
Of concern is the deluge of hospital M&A leaving markets susceptible to antitrust scrutiny by state and federal regulators for monopolistic behavior. One study by Zack Cooper pointed out that only 1% (13 of 1,164) of mergers of acute-care hospitals between 2002 and 2020 had enforcement actions taken by the Federal Trade Commission (FTC). The lax antitrust enforcement has not gone unnoticed. There has been a recent backlash against hospital mega-mergers. The FTC and Department of Justice (DOJ) have started more enforcement actions by asking for a request for information (RFI) to collect more information about corporate and private equity control over healthcare services. However, their success so far with litigation efforts is mixed at best.
Our study has several limitations detailed in the manuscript, chiefly the fact that most studies do not have consistent definitions for cost/spending, price and quality of care, making it difficult to arrive at valid comparisons or definitive conclusions. This is because the true cost is either not known or not shared, and prices are misleading. Despite efforts at transparency, our healthcare system remains opaque. Hospital care accounts for close to $1.6 trillion, or almost a third, of our total healthcare expense of roughly $4.9 trillion. However, not many hospitals or service lines know or disclose how much they spend (not billed or charged amount) on each patient. Do we have national, consensus-based true quality measures, regardless of payor, which every hospital, ambulatory surgery center (ASC) or office-based lab (OBL) should be required to disclose? Only a single study in our systematic review showed improved mortality, whereas even CMPs, which are essentially payor incentive measures, were improved in six, but either worse or showed no change after M&A in 20 of 26 studies.
Some but not most M&As in our review have indeed demonstrated value. Can hospital M&A achieve value for our healthcare system and patients given the right combination of changes? Yes. An example may be to rescue failing hospitals in “hospital deserts” in poor areas or rural hospitals that need financing for upgrades, new technology, or physician coverage. However, although the evidence is mixed, we do not find that the past 20 years of M&A have achieved significant and consistent value in terms of improved quality, reduced cost/ spending, or price. It appears that M&A alone is insufficient to lead the U.S. to a value-based (quality/cost) healthcare system and “cannot be achieved through mergers alone without the infrastructure, methodology, and discipline to achieve this state of value.”1
Can physicians make a difference in leading our healthcare system to value? I believe so. There is enough evidence to support physician executives successfully leading healthcare organizations. We laid out some necessary skillsets to lead healthcare systems almost 15 years ago.5 There are recent examples of successful physician CEOs of large health systems. Joon Sup Lee, MD, CEO of Atlanta-based Emory Healthcare has achieved a “16% revenue spike after a leadership reboot” within two years. Neurosurgeon Steven Kalkanis went from chair to chief academic officer and senior vice president, then CEO of the medical group before he was appointed CEO of Henry Ford Hospital. These are good examples of the path to CEO roles.
The increasing complexity of healthcare “requires leadership and management competencies encompassing systems thinking, self-awareness, self-management, social awareness, and relationship management domains.”1 The scope of learning and experience required for a CEO role is broader than obtaining an MBA degree. There is no requirement to be a financial wizard. A good understanding of budgets and financial statements is enough. Leadership and soft skills are much more important.
The leadership pipeline can be facilitated by fast-tracking physicians interested in a leadership track. My most meaningful professional endeavor has been to start the Faculty Leadership Institute and help train faculty interested in the leadership track. In younger hands now, our medical center is in its 13th year of training faculty in leadership skills.6 In a senior executive dyad structure, well-rounded physicians trained in leadership skills should be given hands-on experience and the independent authority to commit to a patient-centered quality and safety culture, and change processes to allow evidence-based care. Physician leaders need to be able to get back to our roots of being able to effect change and ensure that the patient comes first. Physicians and other clinical leaders leading quality-of-care efforts should be at par with senior executives and reporting to health system boards directly, whose job it is to monitor quality. It seems to me a much better return on investment when artificial intelligence can be realized to arrive at cost, spending and price transparency in our massive healthcare system. Someone please send a tweet to Elon Musk (@elonmusk) and see if he has time with his numerous other interests! Be sure to copy me, @SatianiBhagwan.
References
- https://pubmed.ncbi.nlm.nih.gov/39636013/
- https://www.healthaffairs.org/content/forefront/rise-health-care-consolidation-and-do
- https://pubmed.ncbi.nlm.nih.gov/30933578/
- https://pubmed.ncbi.nlm.nih.gov/27654704/
- https://journals.sagepub.com/doi/abs/10.1177/1538574407309320?journalCode=vesb
- https://pubmed.ncbi.nlm.nih.gov/24360239/
Bhagwan Satiani is an associate editor for Vascular Specialist.
