The true cost of megamergers in healthcare: Higher prices

Novant Health is fighting a lawsuit by the Federal Trade Commission to try to stop it buying two more North Carolina hospitals. (WSJ)
Novant Health is fighting a lawsuit by the Federal Trade Commission to try to stop it buying two more North Carolina hospitals. (WSJ)


Larger hospital systems negotiate higher pay from insurers that show up as higher premiums for workers.

Prices for surgery, intensive care and emergency-room visits rise after hospital mergers. The increases come out of your pay.

Hospitals have struck deals in recent years to form local and regional health systems that use their reach to bargain for higher prices from insurers. Employers have often passed the higher rates onto employees.

Such price increases added $204 million to national health spending, on average, in the first year after a merger of nearby hospitals, according to a study to be published Wednesday by American Economic Review: Insights.

Workers cover much of the bill, said Zack Cooper, an associate professor of economics at Yale University who helped conduct the study. Employers cut into wages and trim jobs to offset rising insurance premiums, he said. “The harm from these mergers really falls squarely on main street," Cooper said.

Premiums are rising at their fastest pace in more than a decade, driven up by persistently high inflation across the economy. Rising costs have fueled contentious negotiations that have led some hospitals and insurers to cancel contracts, leaving patients in the lurch.

Hospital mergers make the price pressures worse.

“When those hospitals have market power, they can use that to extract high prices from insurers and those costs are ultimately passed onto consumers," said Amanda Starc, an associate professor of strategy at Northwestern University, who wasn’t involved in the new study.

Hospitals say mergers create efficiencies and combine resources to make strategic investments and improve quality. Operating costs drop by 4%-7% on average at acquired hospitals after a deal, research shows. Quality stays the same or declines after mergers, studies have found.

The American Hospital Association’s general counsel, Chad Golder, said the study was incomplete because it didn’t include prices for some big insurers.

For the study, researchers analyzed claims from three of the nation’s largest insurers: CVS Health’s Aetna, UnitedHealth’s UnitedHealthcare and Humana.

They found that mergers raised prices by 1.6% over the two years afterward, on average, and by 5.2% where deals gave hospitals hefty market power under federal guidelines.

Hospital prices have been a longstanding target in Washington. The Trump administration issued rules to force hospitals and insurers to make prices public.

The Biden administration and the Federal Trade Commission have targeted hospital mergers as part of a broader antitrust push, including guidelines for problematic deals completed last year.

Federal officials have moved to stop recent proposed mergers, including a deal scuttled in December in the San Francisco Bay area. John Muir Health called off plans to buy a third local general hospital after the FTC sued to end the deal.

“The proposed transaction would have provided substantial benefits for patients and the community," the hospital system said.

The FTC returned to court in January to try to stop Novant Health, one of North Carolina’s largest hospital systems, from buying two more hospitals in the state. The deal would give Novant about two-thirds of a local market known as the Eastern Lake Norman area, the FTC said.

Novant is fighting the lawsuit. Novant has pledged to pour millions of dollars into the hospitals and expand services, including surgery and neonatal intensive care.

The study published Wednesday analyzed price changes before and after 322 mergers between 2010 and 2015. Researchers also compared prices during the same period at similar hospitals not involved in deals.

Researchers looked separately at prices for outpatient services owned by hospitals, such as imaging and ambulatory surgery centers. It is a large and growing share of hospital business, Cooper said.

In sparsely populated areas, outpatient prices climbed more after mergers. Where there are fewer people, the study found fewer outpatient surgery centers to compete for patients’ business.

“The hospital’s the only show in town in those areas," Cooper said.

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