Complete credit for this excellent and timely article to Marty Stempniak.

REH

New Study Analyzes Impact of Hospital Mergers
By Marty Stempniak H&HN Staff Writer	June 03, 2013
American Hospital Association-commissioned analysis says 316 transactions took place in six years.

Hospital consolidation — and the affect it might have on pricing and competition — is a constant topic of conversation in health care circles. Anew study commissed by the AHA suggests that the pace of mergers and acquisitions has actually been relatively modest. The report aims to provide a deeper analysis of why the mergers occurred and what happened in those communities, according to the report authors and AHA officials.

All told, 551, or 10 percent of community hospitals, were involved in 316 such transactions over the past six years, the Center for Healthcare Economics and Policy found. Most of those deals were smaller in size, involving one or two hospitals. Only 20 of those transactions occurred in markets where there are less than five hospitals, which, the authors believe, should ease concerns that M&A activity leads to reduced competition.

"I think there's been a lot of misinformation about what's going on in the hospital field, particularly around mergers and acquisitions," Mindy Reid Hatton, a senior vice president of the American Hospital Association, which commissioned the study, said during a conference call this morning. "This really fills a gap because you hear a lot about consolidation, but you don't ever really see the facts about consolidation."

Drilling deeper into the data, nine of the 20 aforementioned mergers included hospitals with 50 beds or less, likely looking to find a larger partner to pursue clinical integration and provide economies of scale. Jerry Morasko, CEO of Avita Health System, in Galion, Ohio, said during the call that his organization acquired Bucyrus Community Hospital a couple of years ago for similar reasons.

Bucyrus, just a dozen or so miles away, was in bankruptcy and in danger of shuttering. So, Avita pursued the acquisition to help with recruiting, bolster IT, share specialists, and find savings in shared management structures.

"When you live in a rural community, it's hard to get specialists in there because there isn't enough volume to support more than two or three of them, and you have to think every time, if you've got one specialist, he's got to be on call all the time," Morasko said. "It's not a very livable lifestyle, but when you put two of these community hospitals together in a geographic region, they can cover calls with each other and it makes their life a lot more livable."

Responding to a question about previous reports — including one last year from Robert Wood Johnson Foundation — showing that consolidation leads to higher prices, Meg Guerin-Calvert, president and senior managing director with the Center for Healthcare Economic and Policy, pointed out that the vast majority of those transactions weren't classified by regulators as anti-competitive. She also said that's important to distinguish between just general price increases that happen over the course of time, versus price increases that occur when competition dries up.

"The mere fact of a price change in and of itself before or after a merger is not an indicator necessarily of anti-competitive effect," Guerin-Calvert said. "It's really not possible to generalize from those empirical studies that are referenced in that report to say that all mergers lead to anti-competitive price increases."

Rick Polack, executive vice president of the AHA, said that, overall, prices are trending downward in the industry. Plus, health care is local and varies market to market, he said, and a number of other factors contribute to price change, including insurer consolidation.

Pollack expects the health care industry to continue changing at a fast clip, but he's unsure whether that will equate to further merger and acquisition activity.

"There's so much transformation that's going on now as we move toward creating more efficient systems that coordinate care, and whether it's clinically integrated models or whether it's mergers and acquisitions relative to bringing people together, that pace is not going to let up," he said.

The opinions expressed by authors do not necessarily reflect the policy of Health Forum Inc. or the American Hospital Association.

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