Hospital Mergers

Ian McCarthy | Emory University

Types of hospitals involved in mergers

Types of hospitals involved in mergers

  • Ascension-Presence: Largest non-profit system in US adds 10 hospitals to existing 9 hospitals in Chicago
  • Fairview-HealthEast: 11 hospital system becomes largest in Twin Cities area
  • Hospital corporation of america (HCA) adds 4 hospitals to the 10 existing HCA hospitals in Houston
  • Northwestern-Centegra: Forms 10 hospital system in Chicago
  • Emory-DeKalb: Forms 10 hospital system in Atlanta
  • Jefferson-Einstein: Forms 18 hospital system in Philadelphia area

Merger “Types”

Essentially two types of mergers:

  1. “Within-market”
  2. “Out-of-market”

Within-market mergers

  • Most well-understood merger type
  • Established tools for examination in anti-trust
  • Defining the market is still a contentious issue

Within-market mergers

  • Listed previously (Emory-DeKalb, etc.)
  • Big price effects
    • 20 to 40% in many studies
    • Up to 60% in some studies
    • Bigger increases the closer are the hospitals
    • Price increases spillover to other hospitals too
  • Account for about 50% of all mergers since 2000

Out-of-market mergers

  • Less understood
  • No formal structure for analyzing in court
  • These types of mergers are essentially permitted without risk of DOJ/FTC challenge

Out-of-market mergers

  • Involve larger systems spanning different isolated markets
    • Advocate-Aurora: 27 hospital system in IL and WI
    • Baptist Memorial-Mississippi Baptist: 22 hospitals in TN, AR, and MS
    • UPMC-Pinnacle: 24 hospital system recently added 8 in central PA
    • Catholic Health Initiatives-Dignity Health: 142 hospitals in 21 states
    • HCA: 177 hospitals in 21 states
    • RCCH HealthCare Partners: 89 hospitals in 30 states, focusing on non-urban areas
  • About 35% of all mergers are out-of-market but in same state, 15% out-of-state
  • Smaller but meaningful price increases, 5 to 10%

Effects of Mergers on Prices

How do mergers increase prices?

  • Already discussed within-market mergers, outside options, and bargaining power
  • What about out-of-market mergers?

OOM mergers and prices

Two ways this can happen theoretically:

  1. Common customers (hospital markets are local, but insurance markets are more broad)
  2. Multi-market contact (particularly relevant for understanding out-of-state mergers)

1. Common customers

2. Multimarket contact

What Next?

Where do we go frome here?

  1. Adopt sensible policies
  • Certificate of need laws
  • Certificate of public advantage
  • Scope of practice laws
  • Any willing provider laws
  • Site-based payment differentials (encourage vertical integration)
  1. Antitrust enforcement

A note on surprise billing

Some hope here following the No Surprises Act (in effect January 2022):

  • Emergency care (excluding ground ambulances?)
  • In-network facilities
  • New process…
    • OON provider bills health plan
    • Health plan communicates median in-network amount
    • Provider bills cost-sharing to patient

But patient can be asked to waive rights

Final thought