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Updated Report Confirms Hospital Mergers Reduce Cost, Improve Quality of Care

September 04, 2019

Charles River Associates, a global consulting firm, just released an update of the report, Hospital Merger Benefits: Views from Hospital Leaders and Economic Analysis. The research study confirms and supports the previous conclusion that hospital mergers result in reduced costs and improved care, both of which substantially benefit patients. The report was financially supported by American Hospital Association.

The initial report was based on interviews with 20 hospital system leaders and analysis of hospital costs, revenues, and quality indicators. For the updated report, the authors interviewed ten hospital system leaders and analyzed three additional years (2015-2017) of hospital cost, quality, and revenue outcomes data.

The report touches on the fact that many hospitals need to increase scale and scope to catch up with the competitive dynamics of the health care industry. Factors such as an increasing need for information technology (IT) investment and the necessary movement from inpatient to outpatient care due to insufficient reimbursement rates––primarily Medicare and Medicaid––led hospitals to seek ways to adapt to these financial pressures.

Results from Interviews:

Hospital system leaders pointed to merger benefits such as reductions in duplicative administrative operations, lower IT support costs, and the ability to bear risk for the unexpected cost of complex patients.

According to the hospital system leaders, greater scale also allows more sophisticated data analytic capabilities that can:

  • Reduce variation in practice patterns within the system
  • Advance telehealth
  • Allow the use of artificial intelligence to streamline services or predict medical problems, such as patients who are likely to develop sepsis

Leaders also mentioned post-acquisition organization of services, where patients in small communities can access advanced services usually offered by larger hospitals, such as those associated with medical schools. Horizontal mergers also provide struggling hospitals with funding to support physician recruitment and other necessary clinical personnel to better meet their patients’ needs.

In vertical acquisitions and affiliations, hospitals benefit from access to health care services across the full medical continuum. This would include urgent care, imaging, rehabilitation, skilled nursing, and home health. Health system leaders pointed out that ownership, rather than loose affiliations, enhances the system’s ability to provide more cost-effective care delivery.

Results from Cost, Revenue, and Quality Analysis Aligns with Interview Responses

The results of the analysis of hospital transaction, cost and revenue, and quality data and related data were consistent with the views presented during the leader interviews.

  • Hospital acquisitions are significantly associated with a decrease in operating expense of 2.3 percent per adjusted admission, which implies savings of $6.2 million per year with an average annual hospital operating expense of $271 million
  • Hospital acquisitions are significantly associated with a decrease in net patient revenue of 3.5 percent per adjusted admission, implying $9.2 million per year reduction in expenditures that is passed on to the patients and their health plans as savings
  • Hospital acquisitions also are associated with significant improvements in quality, with decreases in the composite indexes of 30-day readmission rates, 30-day mortality rates, and the overall outcome

The report concludes that scale is increasingly critical to be able to provide data-driven and value-based care. These results provide evidence that through hospital acquisitions, hospital systems have been successfully reducing cost, lowering expenditures, and improving quality.  

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