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Hospital acquisitions have consolidated care into fewer and larger health systems. From 2000 to 2020, the share of hospital beds that are part of health systems has risen from 58 percent to 81 percent nationally. A quarter of hospital markets no longer had any independent hospitals by 2020.

A new study published by Elevance Health describes how prices, costs, and quality change when previously independent hospitals are acquired by systems.

Hospital care is the largest segment in the $4.3 trillion U.S. healthcare sector, with $1.3 trillion in annual spending. Despite a decline in inpatient volume over the last decade, hospital spending as a share of the sector increased from 30 to 31 percent over this time.

Most prior studies did not have access to negotiated prices between plans and hospitals, and therefore had to rely on average prices inferred from accounting data reported to the federal government. However, recent work has shown that these imputed prices are only weakly correlated with true prices. As a result, the new study draws conclusions about efficiency gains of the hospitals. Prior studies have not comprehensively evaluated the impact of efficiency gains for independent hospitals after acquisition.  

Hospitals experienced large cost efficiencies and higher revenues after system acquisition.

– – Operating expenses declined by 6 percent, above market trend, at the acquired hospital following system ownership, without any offsetting increase in costs at the acquirer system.
– – Reductions in personnel spending accounted for about 60 percent of the total decline in operating costs.
– – Independent hospital acquisitions by hospital systems increased average inpatient prices for commercially insured patients by 5 percent above market trend, holding procedure intensity constant.
– – Across the top seven Major Diagnostic Categories by volume, prices increased 5-8 percent, with digestive, infectious diseases, labor & delivery, respiratory, and the circulatory system experiencing the largest price increases.
– – The size of the acquiring system size did not seem to matter with respect to price increases at the acquired hospital, suggesting that price increases were uniform at acquired independent hospitals.

Hospital quality declined following acquisition, leading to worse outcomes for patients.

– – For Elevance Health’s affiliated members receiving cardiac care, readmission rates increased by 10-12 percent and remained elevated for three years after the acquisition.
– – Readmission rates for Medicare patients admitted with acute, non-deferrable conditions conservatively increased by 2-3 percent.
– – Acquired hospitals that experienced greater staff reductions experienced greater readmission rate increases, suggesting the reduction in personnel may be a contributing factor.

Access to care was generally reduced for patients at acquired hospitals.

– – The study observed the closure of maternity wards, which were concentrated in rural hospitals.
– – Given aforementioned price increases and staff reductions, one could expect a decrease in hospital patient volume, however the study did not detect a change.
– – Access to medical technology did not change after acquisition.

The Study Authors conclude by saying “This brief highlights that independent hospital mergers have negative consequences for insurers, employers, and consumers. Specifically, payers and patients are exposed to higher prices without a commensurate increase in quality of hospital care.”

“Further, access to care does not improve, with acquired systems no more likely to expand access to medical technology or services. Instead, patients are likely to experience a reduction in access to maternity wards and reduction in staff. As hospital mergers continue to occur at a high rate, it is important that stakeholders understand their implications.”