iProtean—Study Shows Mergers Have Little or No Impact on Prices

The Center for Healthcare Economics and Policy released a report in late January that found no conclusive relationship between hospital consolidation and hospital price increases in communities in the U.S.  HFMA wrote that the study “challenges conventional wisdom about the impact of consolidation on hospital prices.” (“Study: Relationship Between Hospital Mergers, Price Increases Often Overstated,” HFMA Weekly News, January 28, 2014)


Policy experts and legal analysts typically cite research that shows consolidation in a market increases the probability of higher prices due to decreased competition. The report’s authors note, however, that today’s different market conditions could and do imply that past research is “ill-suited—if not misleading—to inform current understanding of likely merger effects,” and that the risks of decreased competition may be significant in only a few markets. In fact, hospital price growth has been slowing and is at a record low, suggesting that “healthcare system redesign and realignment is yielding some benefits.”


Based on an antitrust review of hospital transactions, the authors concluded that:


  • Only a small proportion of actual hospital transactions raise significant risks of substantial lessening of competition. The vast majority of transactions occurred in separate geographies or in ones with numerous competitors. Only a minority of mergers involved prolonged review by the antitrust agencies and, of those, several were not challenged.
  • These trends are more supportive of a conclusion that the majority of transactions are competitively benign or value-enhancing transactions.
  • High concentration, high market shares and the number of competitors are not predictive of either hospital merger challenges or predicted or actual anticompetitive effects. Both retrospective and prospective hospital merger analyses in highly concentrated markets show that mergers even in concentrated markets were not predicted to bring about, nor resulted in, substantial increases in prices.

(Hospital Realignment: Mergers Offer Significant Patient and Community Benefits, Center for Healthcare Economics and Policy, January 23, 2014)


The report also presented conclusions from an analysis of the potential benefits from mergers, focusing on cost, quality and access. The benefits identified included:


  • •Administrative and overhead savings
  • Reduced costs or reduced rate of cost/expense growth through improved operating efficiency or reduction/elimination of redundant services
  • Improved overall operations and efficiency
  • Realignment of services to achieve greater scale of operations or to improve quality of care delivered
  • Reduction of excess capacity
  • Access to capital and improved ability to make necessary investments such as technology and update facilities or services
  • Ability to maintain or expand services in a community (and thereby maintain quality of services or care and/or access to care)

(Hospital Realignment: Mergers Offer Significant Patient and Community Benefits, Center for Healthcare Economics and Policy, January 23, 2014)


But What’s Next?

The next wrinkle in the competitive argument became evident in last week’s ruling by the Federal Trade Commission (FTC) against St. Luke’s Health System’s 2012 purchase of the Saltzer Medical Group. Next week’s post will cover the FTC’s decision about the competitive aspects of system acquisition of a large medical group and what analysts are saying about its impact on the Affordable Care Act.


For a full copy of the report from the Center for Healthcare Economics and Policy, please contact Carlin Lockee at clockee@iprotean.com. iProtean subscribers will have access to the report under the Resources tab of the upcoming courses, Strategic Responses to the Competitive Market, featuring Michael Irwin and Dan Grauman.



For a complete list of iProtean courses, click here.

For more information about iProtean, click here.