By Darin Schumacher, Marketing & Business Development at OSMS

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Health care integration has long been hailed as a solution to rising health care costs and improved quality of care, but a 2023 nationwide study from Harvard University and the National Bureau of Economic Research (NBER) shows that this may not be the case. The research found that physician services delivered within health systems after they go through a merger or acquisition cost between 12% and 26% more than those offered by independent practices.¹

Still, in the last couple of years, mergers and acquisitions between major health systems are becoming more commonplace both across the country and right here in Northeast Wisconsin including Gundersen Health System and Bellin Health, Advocate Aurora and Atrium, and Froedtert Health and ThedaCare. These business dealings drive up health care spending as evidenced by this new nationwide study.

Increase in mergers
While consolidation in health care was already at an increase throughout the early part of this century, the COVID-19 pandemic not only forever changed health care, but it also caused a dramatic increase in hospital mergers and the size of health systems. This was proven by Kaufman Hall’s January 2023 report that showed the fourth quarter of 2022 had one of the highest levels of hospital transactions since the start of the pandemic, with 17 announced transactions in progress.³ Not only did the number of deals rise, but so did the size of the transactions. The smaller partner, on average, had an annual revenue of $852 million, far greater than the prior peak of $619 million in 2021. Even more notable is that many deals involved partners with an average size topping $1 billion.³ This trend is expected to continue as hospital systems look for ways to increase their market share in the competitive health care landscape.⁴

What hospitals promise when they merge
So, what is driving this increase in consolidation among health care providers? When hospital executives release statements about these transactions, they typically include a message touting a shared vision to improve their communities.⁷ These messages typically center around:

• Preserving a legacy of local care
• Expanding patient-centered care and access to more services
• Investing in resources to improve health and well-being
• Making it easier to navigate the health care system
• Strengthening its position to weather industry changes 

The real driver of these transactions has much more to do with the cost of doing business than the appealing message put out by the systems. The health care system is transitioning to a more challenging and complex environment due to increased pressure on payment rates, new contracting models and electronic medical records.⁴

One of the most prominent concerns is the upward trend in operating expenses, particularly in the form of escalating labor costs. With an increasingly competitive job market for health care professionals, wages for nurses, doctors and other staff members have been on the rise, placing a significant strain on hospital budgets.

Moreover, the reimbursement rates that hospitals receive from government programs and private insurance providers have failed to keep pace with inflation. This has left health care providers with a smaller profit margin and less financial flexibility to invest in cutting-edge technology or expand their facilities. At the same time, patient volumes have remained relatively stagnant, putting further strain on the bottom line.⁸

Hospital consolidation can impact customers in several ways, most notably, cost, quality and access. The Federal Trade Commission (FTC) has found that when hospitals merge, they often charge higher prices than if they had not merged or consolidated.⁶ Additionally, research suggests that mergers can lead to lower-quality care as well as reduced access to services. As such, consumers need to understand how hospital mergers might impact them directly so they can make informed decisions about their health care options.

Higher costs
Over the last 20 years, the average health care costs for consumers have been on a steady rise; a trend that appeared before general inflation skyrocketed this year. This, in turn, has increased premium rates and led to higher health care expenses for employers. It’s a worrisome reality that calls for action to ensure affordable health care for all.⁷

The impact health care mergers and acquisitions have on cost is a controversial topic, with industry professionals split on their opinions. While some argue that these structural changes are necessary for the survival of health care organizations in an ever-changing industry landscape, others point out the potentially anti-competitive nature of such consolidations. Fewer providers can lead to a lack of options for health care consumers and limited competition.⁹

An increase in the number and size of transactions has led to more regulatory oversight. President Biden signed an executive order in July 2021 directing regulators to closely examine mergers, including hospital consolidations, to be sure they don’t hurt consumers.⁵ The Federal Trade Commission (FTC) closely monitors this increase in hospital mergers and has expressed concerns about these transactions due to the potential for increased prices and reduced competition. The FTC’s Director of the Bureau of Economics recently stated that when hospitals merge, they can charge up to 50% more than if they had not consolidated. The FTC monitors and reviews hospital mergers closely to ensure that consumers are not unfairly impacted by rising health care costs. ⁶

“The FTC’s Director of the Bureau of Economics recently stated that when hospitals merge, they can charge up to 50% more than if they had not consolidated.”

With the added scrutiny from the FTC, some systems have abandoned planned deals due to regulatory opposition. The FTC has taken action on deals involving systems in overlapping markets, explaining that the deals would lead to higher prices and reduced services for consumers.⁵

Hospitals and medical providers are increasingly facing financial pressures from the rising costs of health insurance.⁴ As a result, they often attempt to negotiate better rates with health insurance companies and employers by using the justification of investing in their facilities to explain price increases. One of the key concerns is that consolidation of health care organizations could create a monopoly-like environment, giving these organizations more power when negotiating with health payers. This newfound leverage allows them to ask for higher prices from insurance companies, pushing medical costs to consumers and employers who fund insurance plans.⁴

Changes to access and quality
Hospital mergers and acquisitions, in their quest for profit and expansion, often lead to noticeable effects on patient access and quality, especially in underserved communities. With financial gains taking precedence over patient care, large health care corporations prioritize cost-cutting and maximizing profits over providing accessible and affordable health care to those who need it most.¹⁰

Not only do health care mergers and acquisitions put upward pressure on prices, but the decrease in competition can also reduce access to care and the quality of care provided. Health care consolidation trends can lead to dramatic shifts in patient populations, and organizations must make changes at both the unit and organizational levels to properly serve these new patients.¹⁰

Not only do health care mergers and acquisitions put upward pressure on prices, but the decrease in competition can also reduce access to care and the quality of care provided.

In many cases, these mergers lead to the closure or downsizing of facilities in underserved areas, resulting in a reduction of accessible health care and medical professionals. This leads to increased patient wait times, longer travel distances for patients seeking care, and overall decreased quality of care.⁴

Another issue that affects access and quality of care comes from expanded health care systems requiring physicians to travel between practice sites.¹¹ This practice can create patient safety issues due to three main risks:

1. Physicians are seeing new patient populations which may be varied from their previous patient load and have different needs.
2. Physicians are unfamiliar with the new infrastructure including the facility itself or the equipment and resources.
3. Physicians are not properly oriented on systematic procedures, roles and responsibilities of their new setting ⁴

While more training and a slower integration plan would be the ideal answer to address these risks, many hospitals are highly focused on efficiencies and profits.¹¹

What is the alternative?
One way that consumers can negate risks associated with the changing health care landscape is by exploring alternative options, including seeking out trusted, well-established, local independent medical practices that offer numerous benefits to consumers.

This can be especially beneficial for individuals with chronic illnesses or complex medical needs, who require more time and attention from their health care providers.

Research indicates that independent medical practices can offer superior care compared to larger health care systems.¹² Many large health systems are governed by executives with no clinical training and they provide a surprising amount of influence over medical decisions their physicians must make. Physicians within independent practices have more autonomy in medical decision-making because decisions are based solely on two parties, the doctor and the patient. Another benefit of independent medical practices is flexibility, attention and time dedicated to their patients during appointments, which can lead to better overall health outcomes.¹²

In conclusion
Consumers should understand that while the health care landscape is changing around them, it brings with it both changes and choices.

In Wisconsin, almost the entire state has been impacted by three major health care deals made within the last year– ThedaCare and Froedtert, Gundersen and Bellin, and Advocate Aurora and Atrium – indicating an increase in consolidation across the state and a continued trend toward change.²  

Consumers must stay informed about the changing health care landscape in their region by keeping an eye on news headlines and local health care publications.

Fortunately, there are plenty of resources available to help consumers make informed decisions including insurance providers, online tools for comparing services and more. Ultimately, the key to finding the most reasonable price for care is to research, ask questions, be proactive and be an informed consumer. By taking the time to explore options, consumers can ensure that they’re getting the care they need without breaking the bank.

To learn more about our cost savings, click here!

1. Miller J. Harvard Catalyst. Care Costs More in Consolidated Health Systems. Published February 1, 2023. Accessed May 3, 2023.https://catalyst.harvard.edu/news/article/care-costs-more-in-consolidated-health-systems/
2. Southwick R. Chief Healthcare Executive. “Two Wisconsin hospital systems are planning merger.” Published April 11, 2023. Accessed May 5, 2023. https://www.chiefhealthcareexecutive.com/view/two-wisconsin-hospital-systems-are-planning-merger
3. Warren R N. SUURJ: Seattle University Undergraduate Research Journal: Vol. 3 , Article 10. “What About the Patient? The Effects of Mergers and Acquisitions in the Hospital Industry on Patient Care.” Published June 3, 2019. Accessed May 4, 2023. https://scholarworks.seattleu.edu/suurj/vol3/iss1/10
4. Heath S. Patient Care Access News. “How Do Healthcare Mergers and Acquisitions Impact Patients?”Published August 7, 2018. Accessed May 4, 2023.https://patientengagementhit.com/news/how-do-healthcare-mergers-and-acquisitions-impact-patients
5. Southwick R. Chief Healthcare Executive. “Atrium Health, Advocate Aurora Health complete merger, and more hospital deals could follow.” Published Dec. 5, 2022. Accessed May 6, 2023. https://www.chiefhealthcareexecutive.com/view/atrium-health-advocate-aurora-health-complete-merger-and-more-hospital-deals-could-follow
6. Gale A H. Missouri medicine, 112(1), 4–5. “Bigger but not better: hospital mergers increase costs and do not improve quality.” Published 2015. Accessed May 3, 2023. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6170097/
7. Torinus, J. BizTimes. “Viewpoints: Does Wisconsin need another hospital merger?” Published May 20, 2022. Accessed May 5, 2023. https://biztimes.com/viewpoints-does-wisconsin-need-another-hospital-merger/
8. Southwick R. Chief Healthcare Executive. “Expect more hospital mergers and partnerships out of financial necessity.” Published April 7, 2023. Accessed May 3, 2023. https://www.chiefhealthcareexecutive.com/view/expect-more-hospital-mergers-partnerships-out-of-financial-necessity
9. Pear R. New York Times. F.T.C. Wary of Mergers by Hospitals. Published Sept. 17, 2014. Accessed May 5, 2023. https://www.nytimes.com/2014/09/18/business/ftc-wary-of-mergers-by-hospitals-.html
10. Levins H. Penn LDI. “Hospital Consolidation Continues to Boost Costs, Narrow Access, and Impact Care Quality.” Published January 19, 2023. Accessed May 4, 2023. https://ldi.upenn.edu/our-work/research-updates/hospital-consolidation-continues-to-boost-costs-narrow-access-and-impact-care-quality/
11. LaPointe J. Practice Management News. “Healthcare Mergers, Consolidation Increase Patient Safety Risks.” Published April 10, 2018. Accessed May 4, 2023. https://revcycleintelligence.com/news/healthcare-mergers-consolidation-increase-patient-safety-risks
12. Grosso N. U.S. News& World Report. Why Private Practitioners Are Still the Best Choice for Consumers. Published October 30, 2018. Accessed May 22, 2023. https://health.usnews.com/health-care/for-better/articles/2018-10-30/why-private-practitioners-are-still-the-best-choice-for-consumers