Insights

New Report Regarding Effects of Hospital Consolidation

In February 2006, the Synthesis Project, an initiative of the Robert Wood Johnson Foundation, released a report ("Report") entitled "How has hospital consolidation affected the price and quality of hospital care?" The Report reviewed and summarized existing studies, and did not conduct new research. The purpose of the Report was to assess the likely effects of hospital consolidation on prices, costs and quality. The Report focused on four issues: (1) the reasons for the wave of hospital consolidation during the 1990's, (2) the effects of hospital consolidation on the price of inpatient care, (3) the effects of hospital consolidation on the quality of inpatient care, and (4) the effects of hospital consolidation on hospital costs.

(1) The Report did not find conclusive explanations for the 1990's consolidations. It suggested that the rise of managed care did not cause the consolidation, however, it did cite evidence that the threat of managed care could have been a factor. (2) Regarding the price of inpatient care, the Report cited research suggesting that prices increase five percent (or much more) due to hospital consolidation, although a few studies did not indicate price increases. Conclusions regarding price increases are made difficult by limitations in each of the three methods (structure-conduct-performance (SCP) studies, event studies and simulation studies) of analyzing hospital price competition. (3) According to the Report, at least some research gave indications that reduced quality results from hospital consolidation. However, some studies did not produce this conclusion. Furthermore, the conclusion was made less certain by variables regarding procedure and geography, as well as difficulty in measuring quality. (4) At least some studies noted in the Report found that hospital consolidation creates cost savings to the hospital, at least for consolidations of facilities (as opposed to consolidation solely of ownership).

The Report referenced the fact that the level of hospital merger and acquisitions, by the mid-1990's, had increased nine times compared to its level at the start of the 1990's. Significantly, the Report stated that for the average metropolitan resident, hospital competition was reduced by an amount equivalent to a reduction from six to four local competitors. According to the Report, close to ninety percent of metropolitan residents (and likely more non-metropolitan residents) lived in highly concentrated hospital markets. Some evidence indicated that when hospitals located close to each other consolidate, large price increases occur. However, the Report noted that monopolies in hospital markets, in most areas of the country, have not resulted. The Report opined that geographic markets for hospital services may be narrower than those generally determined by courts, and that policy-makers may want to look at encouraging new entrants in this market. As an "important area[ ] for future research," the Report suggested studies of hospital and physician perceptions that consolidation is necessary due to insurer market power.

For additional information about this Antitrust Development, please contact Toby G. Singer, leader of the Health Care Antitrust Practice.

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