Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Long-Term Care Planning

A word on hospital consolidation

Your article was successfully shared with the contacts you provided.

When it comes to business, bigger is sometimes much better. The evolution of some of the most successful companies entails gaining market share by – in some instances – merging with or acquiring the competition or partner. And there have been many successful and failed mergers and acquisitions in the U.S. market.

Disney and Pixar combined forces in 2006, allowing the two companies to collaborate freely and easily. Just a few products of the coupling were the hugely successful “WALL-E,” “Up” and “Bolt.” And what about Exxon and Mobil, two oil giants that signed an $81 billion merger agreement in 1999? That move created the largest company in the world, so big in fact that the FTC required a massive restructuring of many of Exxon and Mobil’s gas stations in order to avoid complete monopolization of the fuel industry.

But there are also the failed M&As that have gone down in history. Remember Mattel and The Learning Company? In 1999 Barbie-maker Mattel scooped up educational software maker The Learning Company in a $3.6 billion deal. Less than a year later, The Learning Company lost $206 million, bringing down Mattel’s profits in the process. There was also Quaker and Snapple. In 1994, old-school oats maker Quaker purchased Snapple for $1.7 billion, with grand plans to make Snapple as prevalent as Coke or Pepsi in stores across the globe.

The lesson: Not all business marriages work – and that holds true for the health care industry as well. Possibly, the most notorious of hospital mergers is that of Massachusetts General Hospital and Brigham and Women’s Hospital, two Harvard-affiliated hospitals that joined forces in 1994. Though touted as a move towards greater efficiency and quality of care, the merger proved to be more market dominating and costly to patients. The merger was supposed to take away the ability of insurance companies to demand lower prices from one hospital with the threat that they could just send patients to the other. However, after the merger, insurers had to take both of them or neither.

In July, the New York Times published an editorial stating that “the experience in Massachusetts offers a cautionary tale to other states about the risks of big hospitals mergers and the limits of antitrust law as a tool to break up a powerful market-dominating system once it is entrenched.” And more recently, the Chicago Sun-Times ran a story spotlighting mounting research that anticompetitive hospital mergers contribute to higher costs for consumers – and insurers.

A recent press release from AHIP notes that even the Journal of the American Medical Association says that bigger is not always better. “Higher health care costs from decreased competition should not be the price society has to pay to receive high quality health care.” But where is the proof that hospital consolidation does indeed provide consumers with high quality of care? The Robert Wood Johnson foundation concluded in its recent research on the matter that “physician-hospital consolidation has not led to either improved quality or reduced costs.”

On the other hand, a recent Wall St. Journal piece by Kenneth L. Davis states that “stand-alone hospitals have neither the number of patients to manage the actuarial risk of population management, nor the geographic coverage to serve a large population.” This is a difficult statement to stomach, seeing as PPACA has led to 10-12 million more insured people using the health care system in America.

Anyone who has researched merger success rates knows that roughly 70 percent of mergers fail. Seeing as hospital mergers have historically led to higher prices for patients – and the fact there is little to no proof of hospital mergers being in the best interest of anyone in the game – it’s hard to believe that such consolidation really does improve efficiency and quality of care. In fact, it’s easy to argue just the opposite. 


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.