Are Hospital Mergers Really Better for Patients?

August 24, 2016

Two proposed hospital mergers could create monopolies for patients in Pennsylvania and Illinois respectively. Why do federal judges let them happen?

Across the country, hospitals and health systems are seemingly merging at a feverish pace and that's not necessarily healthy.

In 2015, the number of hospital transactions grew by 18 percent from the prior year, and by 70 percent from 2010. The Affordable Care Act is driving much of this consolidation by reinforcing the notion that there is safety in size. While that may or may not be true, one fact is certain: Consolidation causes prices to go only one way - up.

This impact on cost is also why we at the Association of Independent Doctors (AID) are working with the Federal Trade Commission to block two hospital mergers – one in Central Pennsylvania and one in Northern Illinois. These proposed mergers would harm communities by forming monopolies. Our association grew out of a need to block hospital systems from buying up independent medical practices, a trend that has also driven up healthcare costs. However, we are now also working to slow the hospital-to-hospital kind of consolidation, a related trend.

Here are the two cases in play, both are making headlines and challenging our legal system.

• In May, a federal judge in Pennsylvania gave the green light to Penn State Medical Center and PinnacleHealth System to go ahead and merge, a decision the Federal Trade Commission (FTC) is trying to reverse on appeal to the U.S. Appeals Court for the Third District.

• In June, another federal district judge in Illinois sided with two large hospital systems, Advocate Health Care and NorthShore University HealthSystems, seeking to merge, ignoring the FTC's argument that the merger would cause prices to go up and quality to go down. The FTC is appealing that decision as well.

FTC attorneys in both cases asked AID, as well as economist professors and 11 attorney generals, to write amicus briefs requesting the appellate courts to side with the FTC, because that is what is best for patients. The outcome of these two appeals will have a large impact on the future of healthcare in America.

'These events beg an even bigger question: Why do we have a government agency, namely the FTC, whose job it is to enforce antitrust laws when our country's own judges don't uphold them?

Consolidation may be the trend healthcare is aiming to go in this country, but that doesn't make it a good idea, and it certainly isn't a good reason for judges to rubberstamp every merger hospitals ask for.

Like all hospitals - and all healthcare-related organizations, for that matter - seeking to merge, these entities promise that their combination will lower prices by creating greater efficiencies. The only problem is not one study has shown that hospital consolidation lowers prices. In fact, the opposite is true. In June, yet another study came out, this one from researchers at the University of Southern California, that found that patients who go to large multi-hospital systems rather than independent hospitals pay $4,000 more per patient, ($19,600 compared to $15,600).

The larger systems "used their market power to demand higher prices" from insurance companies, the authors concluded. Of course, they do. The Illinois hospitals have countered this accusation by pledging to create their own insurance plan, which they say would cost consumers less.  As if starting their own insurance plan is such a great idea. When the hospital that provides your healthcare also sells you your insurance, you need to be very worried.

Put into context, if the Illinois hospitals are allowed to merge, the combo would create the largest hospital system in the nation, a 16-hospital system with more than 4,000 hospital beds in a concentrated, urban area. If that isn't a monopoly, what is?

Currently the nation's largest health system, according to Becker's Hospital Review, is New York-Presbyterian Hospital/Weill Cornell Medical Center with 2,259 beds. In second place is Florida Hospital Orlando with 2,242 beds. A Hershey/Pinnacle's conglomerate would create a 1,213-bed system, resulting in the nation's 16th largest health system.

Our best hope is that the U.S. Court of Appeals for the Third and Seventh Circuits will take a clear-eyed view, and see the merger attempts for what they are - another way for hospitals to profit at consumers' considerable expense.

The FTC's job is to prevent monopolies from forming that could harm Americans, but judges like those who ruled in the Hershey/Pinnacle and Advocate/Northshore cases make the job difficult.

Marni Jameson is the executive director of the Association of Independent Doctors. You may reach her at marni@aid-us.org.