Hospital Merger Mania Heats Up!

Earlier this month we saw the announcement of the Aetna/Humana acquisition and now, within the same month, Barnabas Health and Robert Wood Johnson Health System in New Jersey are following suit. The guiding force between this newly announced merger is most likely the opportunity for these two organizations to expand their reach, manage population health and adapt to new payment models.

With other large mergers looming in the distance, in New Jersey and throughout the U.S., I pose the question, once more, “what does this merger mania mean for the healthcare industry and what will be the fallout?”

For one thing, governmental programs are beginning to reward hospitals for going the distance and keeping patients healthy, instead of merely treating them. Hospitals have been under pressure to rein in costs since the Patient Protection and Affordable Care Act went into effect in 2010, in part by keeping patients out of the hospital setting where care is much more expensive. Medicare, for example, penalizes hospitals whose patients return within 30 days of their procedure(s). And, insurers are working with hospitals to pay them, not for the services they provide, but for the outcomes of their patients’ health.

Will the recent hospital mergers sweeping the country help with this effort to improve patients’ health outcomes, while lowering costs? Or will it have an adverse effect?

On one side merging hospitals under a common management can reduce administrative costs, and advancing EHR technologies reduce risk and provide greater stability in the course of hospital network expansion. And health systems are seeking to expand their network because this provides a greater range of patient population-based knowledge and helps with care and cost-effective decision making. Proponents of hospital mergers emphasize that it will result in lower costs and greater efficiency. On the other hand, skeptics argue that decreasing competition among hospitals will actually increase patient costs. Some early data from pioneer ACOs with large networks indicate they have been more effective at generating savings than smaller hospitals. Both sides make valid points, but in an ever-changing industry can anyone be certain as to what will actually happen?

The overall end goal of the ACA is to transition to a population-based model of healthcare. Health systems that have a greater range of patient data will ultimately fare better because of the statistical advantages of making decisions in a larger patient population. This makes sense. Big data and improved analytics should improve care decisions. But, what about reducing costs?

In a report two years ago in the EHR Intelligence Newsletter entitled, “How hospital mergers affect healthcare reform expectations,” empirical research drew the conclusion that mergers did not reduce healthcare costs and even rival hospitals in the vicinity of merging hospitals experienced increased costs of care. The report indicated that price increases were a result of increased hospital bargaining power, as merging reduces competition which in turn raises insurance premiums for patients. Despite these studies, health and government officials are confident that hospital mergers will lower costs and increase the quality of care under the new ACA guidelines.

It is still too early in the process to see the long-term results regarding improved health outcomes and reduced cost. We will all just have to grab some popcorn and wait and see what happens with this hospital merger mania.