The case against consolidating care

Since 2012, over a dozen hospitals have been acquired by larger systems in New York. Just last month, the Greater New York Hospital Association asked Albany for a $2.5 billion, five-year commitment to help large systems acquire smaller failing hospitals. The reasoning here is simple: Large health systems, with their big budgets, large base of administrators and high-end medical equipment, can help failing hospitals improve their quality of care and make them sustainable. But policymakers should beware – the evidence supporting this claim is slim.

First, we shouldn’t take for granted the claim that hospital closures are necessarily harmful. This argument is certainly compelling on its face: Residents may be angry, feel unsafe, and be upset that the hospital they’ve relied on for many years is no longer open to them. But do these kinds of closures actually harm patients?

Fortunately, it appears that the answer is no. An important study from last year published in “Health Affairs” from Harvard Medical School and the Harvard School of Public Health examined 195 hospital closures occurring between 2003 and 2011. The results? The authors “found no evidence that hospital closures were associated with worse outcomes for patients living in those communities.”

Indeed, analysis from the Medicare Payment Advisory Commission suggests that poor-performing hospitals – those that do poorly on patient outcomes – share characteristics with those hospitals that have closed over the years because of low margins and low occupancy. There isn’t much reason to financially support hospitals that deliver poor care to their patients.

But can large health systems bring these failing hospitals up to snuff? Here too, there is little evidence to say that consolidation outperforms a competitive market. A thorough literature review from health economists Robert Town and Martin Gaynor in 2012 found that not only did less-competitive markets deliver worse care, but they carried higher price tags as well.

“Hospital consolidation generally results in higher prices,” Town and Gaynor wrote in their review summary. “When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.” Included studies also found lower mortality rates across a variety of conditions in less concentrated markets.

These findings align with what one would expect in theory: Competition among many small- and medium-sized firms results in lower prices and/or higher quality products for consumers. Absent this – whatever one might hope to happen through a larger, integrated system – the tendency of monopolies to hike prices and stagnate quality tends to shine through.

Even if we think that there are some unmeasured benefits from large health systems – perhaps they provide some unique care to a small group of patients that eludes our surveys – subsidizing hospital mergers is still a bad direction to move. Indeed, as surgeon and author Atul Gawande notes in “The Checklist Manifesto,” one of the most important tools to improving patient health isn’t fancy equipment that can fail or the most experienced surgeons; it’s simply a checklist. The author recounts how a critical care specialist at Johns Hopkins Hospital used a checklist of procedures for Intensive Care Unit physicians to drive 10-day central line infection rates from 11 percent to zero. Over 15 months, only two central line infections were observed, preventing 43 infections and eight deaths, and saving the hospital $2 million.

Of course, checking off all of the boxes isn’t that simple. It requires good management committed to not only the bottom line, but to improving patient care and being willing to learn from mistakes. Intermountain Healthcare in Salt Lake City is an instructive example. The Health System is offering an insurance plan to employers, guaranteeing low annual rate increases; it plans to do so by better applying evidence-based medicine and negotiating better deals with suppliers.

As the industry evolves to bring value to patients in a variety of ways, Albany lawmakers should be working to encourage competition, not consolidation. They can do this by lowering barriers to entry in the health care market – for example, by repealing or amending Certificate of Need laws and other provider licensing requirements. The Legislature should also look at increasing consumer access to information, implementing the All Payer Database and requiring care providers to give patients binding cost estimates ahead of services. More market fluidity, combined with transparent pricing, would go a long way toward growing competition.

New Yorkers would also be well served by a New York state Health Cost Commission, modeled after a similar body in Massachusetts that submits annual reports on health care cost and consolidation trends.

Albany’s focus should be on delivering results to consumers first, on the observable outcomes for patients. While some have fallen for arguments supporting consolidation, only competition has proven to deliver quality care to patients at affordable prices.

Paul Howard is a senior fellow and director of Health Policy at the Manhattan Institute. Yevgeniy Feyman is a fellow and deputy director of Health Policy at the Manhattan Institute.