Hospital Mergers Improve Healthcare? Evidence Shows the Contrary.

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Many things affect your health. Genetics. Lifestyle. Modern medicine. The environment in which you live and work. The degree of competition among health care organizations. Wait, you never considered that last one? You should.

As markets for both hospitals and physicians have become more concentrated in recent years, consolidation can result in worse health care. Studies show that rates of mortality and of major health setbacks grow when competition falls. This runs counter to claims some in the health care industry have made in favor of mergers, arguing that larger organizations can offer better care at lower costs.

Recently, two Texas health systems — Baylor Scott & White, and Memorial Hermann Health System — sought to merge, forming a 68-hospital system. The plan has since been abandoned, but not before Jim Hinton, Baylor Scott & White’s CEO, told The Wall Street Journal that “the end, the more important end, is to improve care.”

Yet Martin Gaynor, a Carnegie Mellon University economist and author of several reviews exploring the consequences of hospital consolidation, said that “evidence from three decades of hospital mergers does not support the claim that consolidation improves quality.”

Competing on Quality, Not Price

This is especially true when government constrains prices, as is the case for Medicare in the United States and Britain’s National Health Service (NHS). “When prices are set by the government, hospitals don’t compete on price; they compete on quality,” Mr. Gaynor said.

In 2006, the NHS introduced a policy that increased competition among hospitals. It required general practitioners to recommend to patients five hospitals, along with quality data for each one. Because hospital payments are fixed by the government, hospitals ended up competing not on price, but on who provided the best quality.

Mr. Gaynor’s study showed the advantages of this policy included shorter hospital stays and lower mortality. According to the study, for every decrease of 10 percentage points in hospital market concentration, 30-day mortality for heart attacks fell nearly 3 percent. Another study found that NHS hospital competition decreased heart attack mortality. Several studies of Medicare also found that hospital competition results in lower rates of mortality from heart attacks and pneumonia.

Cardiologists Consolidate, Hearts Get Sicker

Recently, the Federal Trade Commission examined what happens when cardiologists team into larger groups. The study, published in Health Services Research, focused on the health care outcomes of about two million Medicare beneficiaries treated for hypertension, a cardiac ailment, or for a heart attack from 2005 to 2012. It was found that when cardiology markets are more concentrated, these kinds of patients are more likely to have heart attacks, visit the emergency department, be readmitted to the hospital, or even die.

To illustrate, consider a cardiology market with five practices in which one becomes more dominant — going from below a 40 percent to a 60 percent market share. As the largest cardiology practice became larger, the study found that the chance of having a heart attack, visiting the emergency department, being readmitted to the hospital, or dying would go up 5 to 7 percent.

The study also found that greater market concentration led to higher spending. A different study of family doctors in England found that quality and patient satisfaction increased with competition. 

For many goods and services, Americans feel that competition leads to lower prices and better quality. Inexplicably, we often think of health care as divergent — that it somehow shouldn’t, or isn’t, “market based.” What the research shows, though, is that the greater the medical competition, the greater the health care value.