• U.S. should prepare for a COVID-19 hospital consolidation surge

      02/02/2021
      guest contributor

    Grace Flaherty (@graceflaherty10) is a recent graduate of Tufts University’s MS & MPH program. She specializes in health care policy and nutrition policy and has prior professional experience at the Massachusetts Health Policy Commission and the U.S. Senate.

    The COVID-19 pandemic has created a buyer’s market for large health systems looking to acquire struggling hospitals hard-hit by the pandemic. Despite claims that mergers bring greater efficiencies and more coordinated care, research suggests that consolidation increases health care costs and does not meaningfully improve quality. In addition to continuing antitrust investigations, three policy options can help maintain competition in U.S. health care markets.

    Hospitals are suffering financially due to COVID-19

    The pandemic has brought many hospitals to their knees. With a dramatic reduction in routine procedures and the added costs of caring for COVID-19 patients, U.S. hospitals and health systems suffered an estimated $202.6 billion in total losses between March and June alone.

    Hospitals in rural and low-income areas are particularly vulnerable to these losses. Even before the pandemic, 25 percent of rural hospitals were experiencing financial strain and were at “high risk of closing.” These rural hospitals are important for maintaining health care access in the surrounding communities.

    The federal government has passed billions of dollars in pandemic bailout funds to aid hospitals, but distribution of the funds has been unbalanced, favoring larger, wealthier hospital systems. As a result, some of the hard-hit small independent hospitals may close after the pandemic, leaving patients with fewer options for care.

    Mergers involving financially distressed hospitals may speed up following the pandemic

    Rather than close their doors during times of financial distress, independent hospitals can choose to merge with larger health systems. This is a growing trend in the U.S. health care system, which is becoming increasingly consolidated — dominated by fewer, larger health care organizations.

    Now, with financial conditions deteriorating for hospitals during the pandemic, there is even more incentive for smaller independent hospitals to merge with the dominant health systems or risk going out of business.

    Mergers lead to higher costs without improving quality

    In theory, streamlining the health care system into a few health systems rather than maintaining a patchwork of hospitals may seem like a good idea. However, research suggests that when hospitals merge, patients lose.

    Hospital administrators and national hospital associations defend mergers and acquisitions, claiming they will lead to better coordination, lower costs, and improved patient care. The American Hospital Association has published research on mergers’ consequences, which found reductions in operating expenses at acquired hospitals, reductions in readmission and mortality rates, and savings for health plans.

    However, most evidence from antitrust experts suggests that hospital mergers lead to price increases and higher premiums for patients because there is less competition in the marketplace.

    California provides an example of how mergers affect patients’ pocketbooks. Northern California has seen more rapid health system consolidation than Southern California. A 2018 study measuring the effect of this consolidation found that health care prices in Northern California were between 20-30 percent higher and Affordable Care Act premiums were 35 percent higher than in Southern California.

    You might expect that a higher price tag means better care, but these price and premium increases are occurring without improvements in efficiency or quality. A 2020 study from Harvard researchers compared 246 acquired hospitals to 1,986 control hospitals and found that consolidation did not improve hospital performance and patient-experience scores deteriorated somewhat after the mergers.

    Policies can mitigate the effects of COVID-19 hospital mergers

    State and federal authorities should continue to investigate new hospital mergers and challenge potential threats to competition. However, beyond legal action, policymakers should consider three additional policy options to help promote competition and control costs.

    First, merging health care entities can be split into separate bargaining units. This strategy was used by the Federal Trade Commission in the case of the Evanston merger in 2007. In theory, this policy allows patients to keep access to hospitals while hopefully keeping costs lower because insurers are bargaining with individual hospitals. However, in the case of Evanston, although payers had the option to negotiate separately with the merged hospitals, none took advantage, suggesting that they recognize the benefits are minimal.

    A second option is for states to protect tiered networks, where insurers group hospitals into levels based on cost and quality of care. Tiered networks have been shown to reduce spending by steering patients toward lower cost, higher value care with cost sharing incentives. Massachusetts has passed — and other states have introduced — legislation prohibiting hospital systems from including “anti-steering” or “all-or-nothing” clauses in their contracts, thus allowing insurers to freely tier hospitals in their plans.

    A third route is for states to monitor and control total health care costs through spending targets. Massachusetts was the first state to establish a cost growth benchmark with the power to penalize entities who exceed the benchmark, and other states are beginning to follow suit. Penalties for health care entities exceeding the benchmark may include fines and performance improvement plans.

    These three policies cannot stop hospital mergers from occurring, but they can help reduce the degree to which consolidation drives health care prices higher. In the event of a post-COVID-19 surge in hospital mergers, these and other policies will be important for minimizing its impact on health care budgets.

     
      Health Policy
      consolidation, hospitals, merger
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  • Some recent publications

      08/12/2019
      Austin Frakt

    While I was on vacation, I published two pieces elsewhere.

    1. On hospital mergers and prices with Elsa Pearson in the Providence Journal: “Mergers are often advertised as a way to reduce prices and improve quality of care. We know from decades of research that they do neither of those things and it’s time we stop believing those who say they do.”
    2. On clinical practice guidelines with Gilbert Benavidez on the Health Affairs blog: “Guideline structure, requirements, and adherence continue to be widely varied. With no universal standard nor enforcement of any methodology, a fragmented mass of promulgating bodies will continue to publish guidelines subject to the bias, contradictory information, lack of rigorous evidence, and limited applicability that prior studies have documented.”

    Both pieces received research support from the Laura and John Arnold Foundation.

    @afrakt

     
      Health Policy
      consolidation, guidelines, hospitals, LJAF, market power, merger
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  • Hospital Mergers Improve Health? Evidence Shows the Opposite

      02/13/2019
      Austin Frakt

    The following originally appeared on The Upshot (copyright 2019, The New York Times Company). It also appeared on page B7 of the print edition on February 11, 2019.

    Many things affect your health. Genetics. Lifestyle. Modern medicine. The environment in which you live and work.

    But although we rarely consider it, the degree of competition among health care organizations does so as well.

    Markets for both hospitals and physicians have become more concentrated in recent years. Although higher prices are the consequences most often discussed, such consolidation can also 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. By harnessing economies of scale and scope, they’ve argued, larger organizations can offer better care at lower costs.

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

    Yet Martin Gaynor, a Carnegie Mellon University economist who been an 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.” This is especially true when government constrains prices, as is the case for Medicare in the United States and Britain’s National Health Service.

    “When prices are set by the government, hospitals don’t compete on price; they compete on quality,” Mr. Gaynor said. But this doesn’t happen in markets that are highly consolidated.

    In 2006, the National Health Service introduced a policy that increased competition among hospitals. When recommending hospital care, it required general practitioners to provide patients with five options, as well as quality data for each. Because hospital payments are fixed by the government — whichever hospital a patient chooses gets the payment for care provided to that patient — hospitals ended up competing on quality.

    Mr. Gaynor was an author of a study showing that consequences 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 hospital competition in the N.H.S. decreased heart attack mortality, and several studies of Medicare also foundthat hospital competition results in lower rates of mortality from heart attacks and pneumonia.

    Another piece of evidence in the competition-quality connection comes from other types of health care providers, including doctors. Recently, investigators from the Federal Trade Commission examined what happens when cardiologists team up into larger groups. The study, published in Health Services Research, focused on the health care outcomes of about two million Medicare beneficiaries who had been treated for hypertension, for a cardiac ailment or for a heart attack from 2005 to 2012.

    The study 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 die. These effects of market concentration are large.

    To illustrate, consider a cardiology market with five practices in which one becomes more dominant — going from just below a 40 percent market share to a 60 percent market share (with the rest of the market split equally across the other four practices). The study found that the chance of having a heart attack would go up 5 to 7 percent as the largest cardiology practice became more dominant. The chance of visiting the emergency department, being readmitted to the hospital or dying would go up similarly.

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

    For many goods and services, Americans are comfortable with the idea that competition leads to lower prices and better quality. But we often think of health care as different — that it somehow shouldn’t be “market based.”

    What the research shows, though, is that there are lots of ways markets can function, with more or less government involvement. Even when the government is highly involved, as is the case with the British National Health Service or American Medicare, competition is a valuable tool that can drive health care toward greater value.

    @afrakt

     
      Health Policy
      consolidation, Upshot
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  • Why a CVS-Aetna Merger Could Benefit Consumers

      12/06/2017
      Austin Frakt

    The following originally appeared on The Upshot (copyright 2017, The New York Times Company).

    There are reasons for consumers to be optimistic about CVS’s reported purchase of Aetna for $69 billion on Sunday.

    It’s one of the largest health care mergers in history, and in general, consolidation in health care has not been good for Americans.

    But by disrupting the pharmacy benefits management market, and by more closely aligning management of drug benefits and other types of benefits in one organization, CVS could be acting in ways that ultimately benefit consumers.

    You probably know CVS as a retail pharmacy chain — it runs nearly 10,000drugstores. But over the years, it has diversified. It now runs walk-in clinics, including in Target stores. And it runs one of the largest specialty pharmacies, dispensing high-priced drugs that require special handling.

    In a big move a decade ago that set the stage for more recent developments, CVS purchased a majority of shares of Caremark for nearly $27 billion to enter the pharmacy benefits management business.

    Pharmacy benefits managers are companies that help insurers devise and run their drug benefits, including serving as middlemen in negotiating prices between insurers and drug manufacturers.

    Many health industry experts believe that pharmacy benefits managers effectively increase prescription drug prices to raise their own profits. This is because they make money through opaque rebates that are tied to drug prices (so their profits rise as those prices do). Competition among pharmacy benefits management companies could push these profits down, but it is a highly concentrated market dominated by a few firms, CVS among the largest.

    But CVS’s recent moves may shake up an already changing pharmacy benefits landscape. In October, the insurer Anthem announced its intentions to part ways with the pharmacy benefits management firm Express Scripts. Instead, it will partner with CVS to develop its own pharmacy management business.

    Anthem would not be the first insurer to forgo external pharmacy benefits management and take on the role internally. The insurer UnitedHealth Group also runs a leading pharmacy benefit management business, OptumRx. And CVS’s purchase of Aetna would also remove it as a middleman acting between that insurer and drug companies.

    “While it’s still early, the moves by Anthem and Aetna have the feeling of the beginning of the end of the stand-alone pharmacy benefits manager business,” said Craig Garthwaite, a health economist with Northwestern University’s Kellogg School of Management. These insurers, and UnitedHealth Group, have concluded that outsourcing pharmacy benefits management may not serve their interests.

    This removal of profit-taking middlemen could be good for consumers in the short run if it leads to lower drug prices. “In the long run, it might be harder for new insurers to enter the market because they won’t be able to negotiate lower drug prices than the larger firms,” Mr. Garthwaite said. “This could result in further concentration in the health insurance market.” That could harm future consumers, though not in ways we can predict today.

    The CVS-Aetna deal would be just another of the many recent mergers across business lines in health care. Insurers are buying or partnering with health care providers. Health systems are offering insurance. Hospitals are employing physicians. Even Amazon is jumping into the pharmacy business in some states. This may be part of the motivation for CVS to buy Aetna — defensive jockeying to maintain access to a large customer base that might otherwise begin to fill drug prescriptions online.

    Typically, mergers in the sector have led to higher prices and no better outcomes. But a CVS-Aetna merger might be different because their business lines complement each other. The most significant overlap is in the management of Medicare drug benefits: Both companies offer stand-alone Medicare prescription drug plans.

    But there is a lot of competition in the Medicare drug plan market, so this overlap may not be a leading area of concern.

    The CVS-Aetna merger is primarily about a supplier and its customer joining forces, what economists call a vertical merger. This type of merger can enhance a firm’s ability to coordinate across interlocking lines of business.

    In this case, CVS-Aetna might more effectively manage certain patients with chronic conditions (those insured by Aetna), reducing costs. Let’s imagine that Aetna could leverage CVS’s pharmacies and clinics to help patients — who require medications to avoid hospitalizations — stay on their drug regimen. That could save the merged organization money. It could also translate into both better care and lower premiums, though there’s no guarantee at this stage of either.

    One source of optimism: Research shows that coordinating pharmacy and health benefits has value because it removes perverse incentives that arise when drug and nondrug benefits are split across organizations. When pharmacy benefits are managed by a company that’s not on the hook for the cost of other care, like hospitalization, it doesn’t have as strong an incentive for increasing access to drugs that reduce other types of health care use. That could end up costing more over all.

    So there’s reason to believe that a combined CVS-Aetna might find ways to reduce costs — and represent an instance when consumers actually come out ahead after health care consolidation.

    @afrakt

     
      Health Policy
      consolidation, Upshot, vertical integration
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  • Hospital systems aren’t fulfilling the triple aim

      05/12/2015
      Austin Frakt

    The recent paper by Lawton Burns and colleagues includes a very nice literature and conceptual review of the cost and price effects of hospital system size and configuration. It also includes a new analysis from which it concludes:

    One major finding is that membership in hospital systems is not associated with lower operating costs. A second major finding is that the lack of system effects has been fairly stable over time. Despite changes in information technology and vertical integration, most hospital systems have not improved their operating performance. The one exception is the slight deterioration in hospital costs observed among hospitals belonging to larger and national systems. […]

    Although system formation is not associated with costs, some systems exhibit lower costs than others. We find that hospitals in smaller systems have lower costs than hospitals in larger systems. […]

    For two decades, researchers and consultants have argued the dual advantages of organized systems—the ability to standardize functions and centralize governance and other activities—which can enable them to achieve the triple aim. Our research suggests that many hospital […] systems’ ability to contribute to lower cost health care is nonexistent or limited at best.

    @afrakt

     
      Health Policy
      consolidation, hospitals
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  • AcademyHealth: Consolidation and health reform

      03/09/2015
      Austin Frakt

    There’s little disagreement that health care providers are consolidating. I do not detect a similar degree of agreement about the consequences. More in my AcademyHealth post.

    @afrakt

     

     

     

     
      Health Policy
      AcademyHealth, consolidation, health care quality, prices
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  • Quality in integrated delivery systems

      01/23/2015
      Austin Frakt

    The prevailing view is that consolidation of health care providers does not improve quality and leads to higher prices. But it’s important to acknowledge that that conclusion may be driven in large part from work on hospital mergers. Other forms of integration may, in fact, be quality increasing.

    Unfortunately, there’s not a lot of work on other forms of integration, like hospitals acquiring physician practices or hospitals offering insurance products. Colleagues and I did find higher quality associated with hospital-health plan integration, though also higher prices. (To my knowledge, ours is the only paper to examine this type of integration.)

    A recent paper by Caroline Carlin, Bryan Dowd, and Roger Feldman* examines changes in quality associated with hospitals acquisition of multispecialty clinics:

    In their recent review of the empirical literature examining the impact of integrated delivery systems on cost and quality of care, Hwang et al. (2013) found only four peer-reviewed studies (Shortell et al. 2005; Mehrotra, Epstein, and Rosenthal 2006; Rittenhouse et al. 2010; Weeks et al. 2010) that examined the link between clinic ownership, or clinic size and structure, and quality of care. Mehrotra, Epstein, and Rosenthal (2006) compared horizontally integrated medical groups (IMGs) with the more decentralized independent physician associations, finding that IMGs provided higher levels of preventive care screening. Rittenhouse et al. (2010) found that physician practices owned by a hospital or health maintenance organization were more likely to use evidence-based care management processes. Shortell et al. (2005) found that medical groups affiliated with a hospital or health plan were significantly more likely to be in the top quartile of care management and health promotion indices. Finally, Weeks et al. (2010) compared the care received by Medicare patients in large multispecialty groups affiliated with the Council of Accountable Physician Practices (CAPP), a consortium of 27 large group practices, against care delivered by other practices in the same markets. They found that patients assigned to the CAPP practices received higher levels of evidencebased care. […]

    We examined changes in quality of care measures in three large, multispecialty clinics that were acquired by two hospital-owned IDSs [integrated delivery systems] in the Minneapolis–St. Paul area. We compared changes in quality indicators for the acquired clinics to nine control groups, using a differences-in-differences model. While the acquisition effects were small and, at least in these early postacquisition years, limited to cancer screening and appropriateness of ED use, our results suggest that integration of a clinic system into an IDS has the potential to improve quality of care. However, we also found an increased probability of ACS [ambulatory care sensitive] admissions when the acquisition caused disruption to existing physician–hospital admitting relations.

    This body of work is still not very large — and not all studies use particularly strong methods — so I don’t think we should confidently conclude that all manner of integration apart from hospital mergers is quality enhancing. Still, it does seem that the literature to date is leaning that way (discounting publication bias as well). Note that even if this is so, it does not imply that quality cannot be enhanced without integration. Additionally, examination of prices is important as integration of any type can increase market power.

    * Disclosure: I have worked with Roger in the recent past. Bryan is a longtime colleague.

    @afrakt

     
      Health Policy
      consolidation, vertical integration
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  • Hospital-Owned vs. Physician-Owned Physician Organizations

      10/23/2014
      Aaron Carroll

    JAMA is chock full of great papers this week. “Total Expenditures per Patient in Hospital-Owned and Physician-Owned Physician Organizations in California“:

    Importance  Hospitals are rapidly acquiring medical groups and physician practices. This consolidation may foster cooperation and thereby reduce expenditures, but also may lead to higher expenditures through greater use of hospital-based ambulatory services and through greater hospital pricing leverage against health insurers.

    Objective  To determine whether total expenditures per patient were higher in physician organizations (integrated medical groups and independent practice associations) owned by local hospitals or multihospital systems compared with groups owned by participating physicians.

    Design and Setting  Data were obtained on total expenditures for the care provided to 4.5 million patients treated by integrated medical groups and independent practice associations in California between 2009 and 2012. The patients were covered by commercial health maintenance organization (HMO) insurance and the data did not include patients covered by commercial preferred provider organization (PPO) insurance, Medicare, or Medicaid.

    Main Outcomes and Measures  Total expenditures per patient annually, measured in terms of what insurers paid to the physician organizations for professional services, to hospitals for inpatient and outpatient procedures, to clinical laboratories for diagnostic tests, and to pharmaceutical manufacturers for drugs and biologics.

    Exposures  Annual expenditures per patient were compared after adjusting for patient illness burden, geographic input costs, and organizational characteristics.

    The gist of this was that researchers wanted to see what expenditures were per patient in physician-owned groups versus hospital-owned groups. They adjusted for patient health, geography, and other organizational characteristics.

    Physician-owned groups had expenditures of $3066 per patient, versus $4312 in hospital-owned groups. Groups owned by multihospital systems had expenditures of $4776. Even after adjust for other factors, the difference between expenditures remained significant ($435 more for hospital-owned groups and $704 more for multihospital-owned groups).

    Consolidation seems to be the trend of the day. Do with this what you will.

    @aaronecarroll

     
      Health Policy
      consolidation, expenditures, spending
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