fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

Realignment in the 21st Century—Challenging Common Misconceptions

June 24, 2014 | FAH Hospital Policy Blog

Category: Realignment, Uncategorized

A recent post in The New York Times’ “The Upshot” blog by Boston University health economist Austin Frakt assesses the impact of large provider organizations on the American health care system and consumers. This offers the latest example of academia clinging to and reciting misconceptions about provider consolidation and realignments that are outdated – and in some cases – altogether incorrect.

It is a mistake to rely on studies of realignments based on market conditions in the 1990s as apropos or relevant examples of the current market and state of health care.  Contemporary studies and reports on realignment show many of the claims based upon 1990s market conditions no longer hold weight.  Earlier this year, the FAH commissioned a report from FTI Consulting’s  Center for Healthcare Economics and Policy to perform a comprehensive review of the state of hospital consolidation today.

The Center’s report surveyed 75 studies and 36 primary sources, all pertaining to recent realignments.  What it finds is a reality far different from the claims from critics:

Significant Community Benefits: Perhaps the most surprising finding—The Center’s report states that realignments create marked community benefits such as expansion of services, improved service offerings and quality of care, sustained and necessary investment in technology, facilities and health IT, and prevention of hospital closures that, in turn, maintain access to emergency and many other hospital services.  These benefits, overlooked in all previous assessments of realignments, are in fact providing a better health care model for consumers.

Hospital Prices: The largest misconception linked to realignment is that it increases hospital prices.   The Center’s report found no consistent statistical relationship between realignment and prices.  The claims of price hikes for consumers with realignment have no direct correlations based on contemporary mergers, consolidations and realignments.

Market Power: Second to assertions of price increases is the claim of increased market power for hospitals and elimination of competition in markets where realignments take place.  Much to the contrary, the Center’s analysis showed that the vast majority of mergers do not impede market competition.

WHY?  Old Data. The root of these misconceptions perpetuated over time lies with the data sourced for the claims.  It turns out the majority of critics railing against hospital realignments are taking a page from the same book, filled with 20+ year old data.  The economic environment and the state of health care in the 1990s is so vastly different from today – trying to equate that data and those experiences to what we are living right now is what drives these errors and misconceptions even in 2014.

REALITY:  Market conditions today are responding to key drivers behind realignments.  The Center’s study assesses the drivers behind realignments today.  The nation’s health care landscape is shifting toward integrated systems and coordinated care to create sustainable market conditions for hospital care and services.  It is this transition of the health care model in conjunction with other factors, including substantial public sector reductions in hospital funding, which necessitates many of these realignments – hospitals must adapt to survive and continue serving their patients.

In addition, price growth in health care generally, including hospitals, has been in a steady decline for years. And this decline, which remains near historic lows, has occurred during the same period in which there has been a great deal of hospital realignment. Underscoring this trend, the Altarum Institute’s May 8, 2014, report states that “[w]hile analysts continue to express concern about the potential pricing power from provider consolidation, there is, as yet, scant evidence of this.”

When we assess policy trends, we must look forward. Looking back nearly 25 years will not paint an apt picture of the reality we know now. It is imperative for experts and other industry leaders to look towards contemporary, comprehensive reports for appropriate data and analysis.  Recycling claims based on decades-old data does not serve the consumer and does not speak to the reality of healthcare today.