Federal regulators are raising concerns over hospital group megamergers even when the facilities are not geographically close to each other, according to a noted health care and antitrust expert.
The concern is a combined hospital group that is so large it can use its weight to deliver "all or nothing" ultimatums to insurance companies, raise premiums and ultimately increase costs.
A study published by Northwestern University's Kellogg School of Management found that such combinations within states "can reduce competition among the merging providers for inclusion in insurers’ networks of providers, leading to higher prices."
The Federal Trade Commission (FTC) has proven aggressive and successful in blocking mergers by hospital groups operating in the same city or region, notably in Chicago and Pennsylvania, said Thomas Greaney, the Chester A. Myers Professor of Law Emeritus at the University of California at Hastings.
But regulators historically have taken a more hands-off approach when hospitals are in different parts of the United States or within a state, Greaney told Patient Daily.
Hospital groups have heard the message from regulators "loud and clear" that there must be a clear geographic distance between facilities, Greaney said. But they are looking for other ways to merge.
A recently announced merger between Ascension and Providence St. Joseph Health would create the largest hospital system in the U.S., with 191 hospitals across 27 states, and would likely pull in an annual revenue of roughly $45 billion.
Additionally, Catholic Health Initiatives and Dignity Health also recently announced that they had signed a definitive agreement to merge. That new health system would include 139 hospitals, more than 159,000 employees and 25,000 physicians and other advanced-practice clinicians. The combined revenue would total $28.4 billion.
There is growing concern about the "system effect," Greaney said. This is a cross-country, cross-market merger where a hospital group can acquire or merge with a rival and then present insurers with an "all or nothing" proposition that it if deals with one then it must deal with them all.
"That creates a certain amount of power, and the FTC is looking at this," Greaney said. "The concern is they have extra bargaining leverage, and the concern for the patient is that it drives up prices and that will come down to premiums."
The argument for mergers is that patients receive better treatment, there is better efficiency, quality will increase and costs will go down. Economic data does not bear that out, Greaney said. In fact, costs might end up rising due to mergers and consolidations.
"The data shows at best neutral, some say it gets worse," Greaney added.
The hospital groups that are considering megamergers are all nonprofits, which some claim do not raise prices. Again, data show that is not true; they are as likely to raise prices as profit-driven hospital systems, Greaney said.
"Studies do show nonprofits are more likely to stay in a market rather than abandon, stay in business rather than flee to the suburbs," he added.
Former U.S. Sen. Tom Coburn, a doctor and a fellow with the Manhattan Institute, believes that many of the big hospital chains will not survive against more nimble, innovative competitors.
"Most big hospitals do not even know what their costs are," Coburn told Patient Daily. "Markets will prevail, and there is a market for the price of health care."
Coburn cites his home state example of the Surgery Center of Oklahoma in Oklahoma City. Prices are 45 percent lower than other facilities in the region.
Coburn said that much of the consolidation is to drive profits and that even the nonprofits are in the business to generate dollars, even though these actions could be harmful to patients.