Strategic Partnerships Mergers and Acquisitions

Experts raise concerns about hospital merger-and-acquisition activity but differ on how Congress should respond

May 24, 2021 9:02 pm
  • During a recent Senate hearing, a hospital advocate responded to criticism of consolidation stemming from hospital mergers and acquisitions of physician practices.
  • Other members of the panel described negative impacts of consolidation and various approaches that could be used to counter the trend.
  • Recommended considerations for Congress include bolstering antitrust enforcement and scaling back regulations.

A recent congressional hearing on consolidation in the healthcare industry made for a lonely situation for one hospital advocate.

Rodney Hochman, MD, president and CEO of Providence St. Joseph Health and chair of the American Hospital Association (AHA) Board of Trustees, was the only person on a six-witness panel to tout the benefits of consolidation. The other experts and most Senate members who asked questions during the May 19 hearing were inclined to talk in terms of drawbacks.

“There are many reasons for mergers and acquisitions in the hospital field,” Hochman testified to the Senate Subcommittee on Competition Policy, Antitrust and Consumer Rights. “Often, they are prompted by financial pressures that can limit a hospital’s ability to marshal the resources needed to effectively care for its community, especially small and rural critical access hospitals.”

Several days after the hearing, the AHA again pushed back on concerns about hospital consolidation trends. On May 21, the New York Times published an article that described how some larger health systems took advantage of Provider Relief Fund (PRF) distributions to buy up struggling hospitals over the past year.

In a statement attributed to President and CEO Rick Pollack, the AHA noted that providers are obligated to return any PRF funding not used to cover expenses or lost revenue stemming from the COVID-19 pandemic.

In addition, the pandemic “led some hospitals in some communities to join integrated systems to remain financially stable,” according to the statement. “Being a part of a system has been a lifeline for those hospitals and their patients in terms of financial, technical, material and professional support, and life-saving care.”

Issues with concentrated hospital markets

In addition to Hochman, three healthcare policy researchers, a patient representative and an executive with the Service Employees International Union were asked about merger-and-acquisition activity during the Senate hearing.

According to their testimony, key concerns involve:

  • Increases in healthcare spending overall and in prices for purchasers specifically
  • Suboptimal quality outcomes
  • Depressed wages and benefits for healthcare workers
  • Lack of innovation

“Lack of competition has a lot to do with these problems,” said Martin Gaynor, PhD, professor of economics and public policy at Carnegie Mellon University and former director of the Bureau of Economics at the Federal Trade Commission (FTC).

The AHA’s Hochman said data reveal benefits of the M&A trend, which Gaynor noted has resulted in a third of physicians working in hospital-owned practices and “the majority of local areas” being dominated by a single system.

Advantages that accrue when hospitals combine in a system, Hochman said, include:

  • Lower healthcare costs thanks to increased administrative efficiencies
  • Improved ability to make capital investments and effectively deploy resources
  • More stability and opportunities for the workforce
  • Quality improvement through enhanced access to innovative tools and technology

Data shows that mergers don’t increase revenue per admission, he added. That point “is worth underscoring because it is inconsistent with claims that hospital transactions are all about acquiring market power to increase prices.”

Different takes on the data

To support his arguments, Hochman cited research by Charles River Associates. Gaynor countered that the 2017 and 2019 studies by the firm “were commissioned by the American Hospital Association. Those were not subjected to any scientific review whatsoever, and they are not consistent with the scientific evidence done by independent researchers and subject to rigorous scientific review.”

He noted that studies indeed have shown cost reductions stemming from hospital mergers, but not when the transaction involves hospitals in the same market.

“When hospitals that are close to each other and are close competitors merge, prices go up. That comes out of workers’ pockets, some studies show dollar-for-dollar,” Gaynor said.

Hochman was adamant that concerns about consolidation are misplaced. With respect to the impact on wages, benefits and working conditions if a consolidated system gains monopsony power, he said hospitals actually are facing a scarcity of labor. The shortage has been exacerbated during the pandemic.

“We have seen, if anything, steady increases in the labor costs, which went to wages and better benefits,” he added.

Different opinions about solutions

Although Gaynor and his fellow researchers all agreed that Congress should seek to counter the trend toward consolidation, they diverged on recommended steps.

For example, Gaynor said granting more authority and resources to the FTC and the antitrust division of the Department of Justice would allow for better enforcement and help provide clarity to both healthcare stakeholders and the courts. His proposals seemed to have the support of Sen. Amy Klobuchar (D-Minn.), chair of the subcommittee, who recently introduced bipartisan legislation to update merger-filing fees for the first time since 2001.

Michael Cannon, director of health policy studies for the Cato Institute, said government regulation of hospitals, healthcare professionals and health plans is among the interventions that “create incentives” for consolidation.

Initial steps to decrease such intervention, Cannon said, should involve scaling back state certificate-of-need laws, any-willing-provider laws and some clinician-licensing regulations. At the federal level, “Congress should curtail network-adequacy laws that inhibit competition among both insurers and providers.”

Brian Miller, MD, MBA, assistant professor of medicine and business at Johns Hopkins, said the trend toward consolidation can be stanched by promoting competition. Congressional policy levers include:

  • Providing statutory authority for site-neutral payments
  • Reforming Stark Law to allow independent physicians to better compete in their markets
  • Repealing the ban on Medicare participation by new physician-owned hospitals


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );