Earlier this month, a powerhouse team of health economists looked at quality outcomes for hospital mergers. The results were impressive for policy purposes but quite depressing:
Kicking off the decade with a paper on hospital mergers in @NEJM https://t.co/cE7GvA1E20 We know mergers increase prices. What do we get in return? We find no evidence of quality improvement & worsening in patient experiences. Put that together: mergers=bad for patients on avg https://t.co/r6t1G6eRbD
— Michael McWilliams (@JMichaelMcW) January 2, 2020
We could conceivably be willing to pay more if we, as a society and patients, get better quality services and outcomes.
We could be willing to pay more if we get a better experience for the same outcomes.
Those are plausible improvements that may be worth paying more for.
However this study is not finding those types of improvements. So what is happening? Are these mergers mostly about market power and building moats to enable the collection of rent? That is one hell of a plausible interpretation that has not been disproven yet.
Baud
Merger proponents say they help reduce medical costs. Is that true and the cost savings are just going to profits rather than to consumers, or is that not true? Does this study say?
Butter Emails
1. Fees for firms that specialize in corporate mergers.
2. Golden parachutes for one set of executives
3. Salary increases, bonuses for the remaining executives because executive compensation scales with size
4. One set of stock holders generally gets rewarded because their stock is overvalued in the transaction.
5. Rest of shareholders may be rewarded provided the extra revenue generated by rent seeking isn’t all pocketed by the executives
6. If you’re a religiously affiliated institution you get to enforce your values on more people
Butter Emails
Duplicate deleted.
MattF
This doesn’t appear relevant to the situation in the DC area where MedStar, Johns Hopkins, Inova, GW, and independent (e.g., Children’s) all collide and compete. The hospitals I’m familiar with (Georgetown and Sibley) have renovated and improved services in the past decade.
daveNYC
Mergers between major corporations generally haven’t been great for consumers, I see no reason why hospitals would be any different.
The Dangerman
Absolutely nothing, say it again.
Someone had to do it.
sherparick
@Butter Emails: You forgot that as a monopoly and it can raise prices for the services offered. Also, as a monopsony it can bargain down the price paid to employees and suppliers who have fewer options. So reducing their internal costs does not translate in reduction of costs that are charged third parties.
Frankensteinbeck
@Butter Emails:
Which is why Catholic Health Care is merger mad. My mother the ER doctor went through one of those mergers years ago. Not only was it a general mess, when they screwed everything up financially they would only agree to leave if there was a contract enforcing a lot of their bigotries after they were gone. Catholic Health Care takes over a lot of independent hospitals, apparently just for the purpose of being misogynist/homophobic/transphobic assholes.
low-tech cyclist
Yeah, I was hearing that title in Edwin Starr’s voice too.
I can understand why health care reformers take on the insurance companies and Big Pharma, but leave the doctors alone: even if the docs are earning way too much, most people really like their doctor.
But the reluctance of reformers to take on the hospital conglomerates mystifies me. Hospitals shouldn’t be Just Another Big Business in the first place, and it’s hard for me to believe that many people have deep emotional connections to their local hospital. What’s the deal with that?
Hoodie
Even without considering the obvious perverse economic incentives (e.g., increased C-suite comp), growth of large organizations, such as corporations, hospital systems and universities can cause nonlinear effects, such as cultural dilution and span of control issues. A lot of people labor under a misconception that economy of scale is a linear thing, kind of like the popular misunderstanding of the relationship of taxes to productivity. In some organizations, expansion beyond a particular size creates new problems that are expensive in one way or another, e.g., they cause damages that are expensive to prevent or compensate. A corporation may have, for example, a particular culture that is effective at a given size, but that culture does not necessarily scale when the system acquires another corporation that has a different culture. See, e.g., Boeing and McDonnell Douglas.
dnfree
@Butter Emails: it was good enough to say it again! I was going to say something similar but you covered it.
dnfree
@MattF: that’s because there is competition in your area. If you lived in a rural area you’d see different results.
chopper
@The Dangerman:
your post aint nothin’ but a heartbreaker.
EmbraceYourInnerCrone
Many of these mergers and take overs are by Catholic hospitals. For some people that means the only hospitals in their area may be owned by the Catholic church: If you are raped and go to the ER you may not be able to get emergency contraception, if you want a tubal ligation you won’t get it at a Catholic hospital, if you are pregnant and continuing the pregnancy threatens your life, your future fertility or you long term health you may not be able to get an abortion, even if the pregnancy is not viable, you may not have your DNR honored if you end up in a Catholic hospital. Because letting someone’s idea of religion should affect my available health care…Reason number 67,000 why religious institutions should NOT be allowed to operate health care facilities.
forbes.com/sites/judystone/2016/05/07/health-care-denied-at-550-hospitals-because-of-catholic-doctri…
From the article: “For example, San Juan Island (Washinton State) developed an affiliation with PeaceHealth, a Catholic health system. Now women on the island can’t get necessary reproductive care, a problem on other islands as well. There has been little detail available as to what compromises to patient care and autonomy the University of Washington made when it, too, affiliated with PeaceHealth. Washington’s Swedish Medical Center stopped doing abortions and closed its hospice after making a similar affiliation.”
This is bullshit
Fair Economist
Mergers are almost never about any kind of genuine economic efficiency, in any field. They are for creating monopoly/monopsony power, and they are bad for everybody else. Even when the mergee is far from a monopoly it assists in corrupt tacit deals among the remaining players. There is a reason, back in the days when the government enforced trust law, that a concentration of only 3% of the market was enough to justify review.
evodevo
@Butter Emails: Yes. This.
EmbraceYourInnerCrone
From the ACLU report on Health Care Denied:
“In the spring of 2015, Dr. AuTumn Davidson was called in to the University of Illinois Hospital in
the early hours of the morning to perform an emergency abortion. The patient was 19 years old and
about 19 weeks pregnant, with a subchorionic hemorrhage causing heavy bleeding. The patient had
sought emergency care at two different Catholic hospitals during the previous week, but neither
would perform an abortion—even though she was bleeding so heavily that one of the hospitals gave
her a blood transfusion before sending her home.“She told us that someone at the second hospital had whispered to her that if she wanted an abortion,she could go to another hospital,” Dr. Davidson recalled. “When we admitted her, her hemoglobin was at 6 instead of at 11 or 12, where it should have been. She and her partner just kept saying that they thought she was going to die.”
TomatoQueen
@MattF: I’m on the Virginia side of the Medical Blob, and also have watched from afar as Yale New Haven Hospital enblobifies everything medical from one side of the state to the other, including the catholic hospital St Raphael’s, which is Gone. These mergers and Enblobifications have improved communications. I don’t know whether outcomes have marched along but as both communities have teaching hospitals as major players I would expect better outcomes too (I am a dreamer). As for the bond between patients and medical facilities, well, if you’ve had a kid at St Jude’s or National Children’s, that’s a lifelong relationship. Or, if as an adult you’ve had a successful outcome, you might consider funding a treatment wing at your local facility–considering the high dollars involved, is private funding best used this way or would a mobile clinic be better, is a question–or maybe a big fat donation to the charitable fund. There’s ways and ways, and technology supports it all. I have no experience at all with the bad side of this.
Wjs
Please note that the Mayo Clinic system has been swallowing up hospitals and clinics so that it can close them and consolidate them in order to eliminate competition. Hoping for someone to come along with a plan to stop this….
gene108
@low-tech cyclist:
People “interact” with drug makers, when their drugs become too expensive. People interact with insurance companies all the time, because insurance companies decide what does and does not get paid.
So these are easy to demonize.
But yeah, it does get overlooked that providers are the primary reason costs keep going up.
Mike G
Having been through this in a hospital that was swallowed up, it’s about market power and rent-seeking for the parent organization. For my facility, it was about extracting management fees that far outweighed any efficiency gains from shared services, being press-ganged into stupid and ruinous initiatives and requirements, then being sold off and shut down when they calculated the real estate was worth more than the hospital.
WaterGirl
PSA:
You guys may notice that, as a few minutes ago, Anderson on Health Insurance is no longer listed under Featuring – that’s because Open Enrollment is over, so it’s time to feature something else for awhile.
Never fear, Anderson on Health Insurance is one of the 32 top-level categories that can be found at any time under View by Topic in the sidebar.
Political Fundraising is also one of the 32 top-level categories that can be found at any time under View by Topic in the sidebar.
Political Fundraising has just been added to Featuring in the sidebar. So even if you miss one of Doug’s fundraising posts in real time, it will be simple for you to find them under Featuring.