When Hospitals Merge to Save Money, Patients Often Pay More



The nation’s hospitals have been merging at a rapid pace for a decade, forming powerful organizations that influence nearly every health care decision consumers make.

The hospitals have argued that consolidation benefits consumers with cheaper prices from coordinated services and other savings.

But an analysis conducted for The New York Times shows the opposite to be true in many cases. The mergers have essentially banished competition and raised prices for hospital admissions in most cases, according to an examination of 25 metropolitan areas with the highest rate of consolidation from 2010 through 2013, a peak period for mergers.

The analysis showed that the price of an average hospital stay soared, with prices in most areas going up between 11 percent and 54 percent in the years afterward, according to researchers from the Nicholas C. Petris Center at the University of California, Berkeley.

The new research confirms growing skepticism among consumer health groups and lawmakers about the enormous clout of the hospital groups. While most political attention has focused on increased drug prices and the Affordable Care Act, state and federal officials are beginning to look more closely at how hospital mergers are affecting spiraling health care costs.

During the Obama years, the mergers received nearly universal approval from antitrust agencies, with the Federal Trade Commission moving to block only a small fraction of deals. State officials generally looked the other way.

President Trump issued an executive order last year calling for more competition, saying his administration would focus on “limiting excessive consolidation throughout the health care system.” In September, Congress asked the Medicare advisory board to study the trend.

But not only have big consolidations continued, the behemoths have further cemented their reach in some regions of the country by gobbling up major doctors’ and surgeons’ practices.

“You have to watch for these systems throwing their weight around,” said Xavier Becerra, the California attorney general whose office has sued Sutter Health, a sprawling system in the northern part of the state. “We are looking for cases where consolidation does nothing for efficiency and leads to distortions of the market.”

Ted Doolittle, who heads Connecticut’s Office of the Healthcare Advocate, has fielded angry complaints from residents, but he sees few options available to officials. “A lot of this is too little and too late,” he said.
The latest giant hospital consolidations continue to stir concerns. Dignity Health and Catholic Health Initiatives, two large chains, are expected to become one of the nation’s largest groups — with 139 hospitals in 28 states — by the end of the year. And two of Texas’ biggest systems, Baylor Scott & White Health and Memorial Hermann Health System, recently announced plans to combine.

The New Haven area has witnessed the most significant decline in competition. Yale New Haven Health, one of the largest hospital groups in Connecticut, took over the only competing hospital in the city and has also aggressively expanded along the state’s coast. The group recently added another hospital to its collection, merging Milford with its Bridgeport location.

Although the price of a hospital admission in the New Haven-Milford area was already three times higher than in other parts of the state, prices surged by 25 percent from 2012 to 2014, compared with 7 percent elsewhere in the state, according to the Petris Center.

In the national analysis, a third of the metropolitan areas experienced increases in the cost of hospital stays of at least 25 percent from 2012 to 2014, from roughly $12,000 to at least $15,000.

Prices rise even more steeply when these large hospital systems buy doctors’ groups, according to Richard Scheffler, director of the Petris Center.

“It’s much more powerful when they already have a very large market share,” said Mr. Scheffler, who recently published a study on the issue in Health Affairs. “The impact is just enormous.”

Thousands of Connecticut residents were stranded without a local hospital last year when another big hospital group, Hartford HealthCare, battled the state’s biggest health insurer over how much it would charge for patient care.



Its six hospitals are clustered around the state capital and are the only resort for residents in broad swaths of the eastern part of the state. This month, it announced plans to add a seventh hospital to its network.

“These systems are empire-building, there’s no question,” said Jill Zorn, a senior policy officer for the Universal Health Care Foundation of Connecticut, which seeks to improve access for residents. “But to whose benefit?”

Numerous studies by economists and others have underscored how hospital consolidation is driving up the cost of medical care. “Within the academic community, there is near unanimity,” said Zack Cooper, a health economist at Yale University who is among a group of researchers that has looked at how dominant hospitals affect prices.
The emergence of a one-hospital town is inevitable in many places, and the Parkersburg, W.Va., area is no exception. St. Joseph’s merged with neighboring Camden-Clark Memorial in 2011, and then they were consumed by what is now the state’s largest health system.

“We’ve got it down to a single campus,” said Albert L. Wright Jr., the chief executive of West Virginia University Health System. “Parkersburg is not big enough to support two hospitals.”

Residents can get most care locally but they go to Morgantown, where the academic medical center is situated, for complex conditions. “We’ve elevated the level of care,” Mr. Wright said.

But private insurers are paying more. In the Parkersburg-Vienna area, the overall price of a hospital stay increased 54 percent from 2012 to 2014, after the mergers. That is compared with 10 percent elsewhere in the state, according to the Petris Center.

Large systems “get paid better by some of the insurers,” Mr. Wright said.

Flailing hospitals often have little choice but to be acquired or go out of business, and a larger system can offer badly needed capital and management skills. “They can fix a hospital and benefit the community,” said Torrey McClary, a lawyer who specializes in mergers at King & Spalding.

When Yale New Haven Health took over the Hospital of Saint Raphael, a Catholic hospital six blocks away from its New Haven location, Saint Raphael was in danger of going under. Over the last six years, the system has invested more than $200 million in capital improvements at Saint Raphael, said its president Richard D’Aquila, including modernizing “everything behind the walls.”

Because it converted Saint Raphael into what is essentially a second 555-bed campus for its academic medical center, Yale New Haven Health defends the higher rates it charges private insurers as appropriate for a top-tier medical institution. Its community hospitals negotiate prices individually with insurers.

“Our focus is not on getting bigger,” Mr. D’Aquila said. He said Saint Raphael, which was half empty when it was taken over, is now seeing record numbers of patients.

Systems also say they are trying to improve the care for smaller communities. “We’re actively trying to move care toward places that are accessible,” Hartford’s chief executive, Elliot Joseph, said.
But patients rarely reap the rewards of lower insurance premiums or out-of-pocket expenses when mergers occur.

Hartford executives talk about reducing the total cost of care in the same breath that they discuss the need to charge insurers more. “The math for us is how we move the care out of the hospitals while maintaining our financial stability,” Mr. Joseph said.

To defend higher rates, many hospitals cite low reimbursements from government sources, particularly Medicaid, and highlight their role as a safety net. “We’re left with no choice,” Mr. D’Aquila said.

Others, like Hartford, negotiate prices as a single entity, forcing health insurers to include all of their hospitals in a network or risk losing access in areas where there are no alternatives.

Hartford “has taken over so many hospitals and practices that, with the Anthem dispute, we felt we had no choices at all,” Sharry Goldman, a Storrs, Conn., resident, told state lawmakers. Although Hartford and Anthem Blue Cross, the insurer, eventually reached an agreement, Connecticut passed a law this year requiring hospitals and insurers to extend previous contracts for two months to protect consumers when the parties are at an impasse.

While patients may pay more for a well-known brand, like Yale, it is not clear that the higher price tags lead to better care, said Francois de Brantes, a health care executive who once worked at General Electric, which is headquartered in the state.




“We have more lower-rated hospitals in Connecticut than in other New England states,” he said, pointing to an analysis he did at the time of the Anthem-Hartford dispute.
In the Albany, Ga., area, where the Berkeley researchers found a rare decline in hospital prices, the Federal Trade Commission had unsuccessfully attempted to block HCA, the for-profit hospital chain, from selling its hospital to its only local competitor in 2011. But the merger took place, and the F.T.C. reached a settlement with the parties involved.

While Berkeley researchers foundarea prices dropped, another study by two former F.T.C. employees, Christopher Garmon and Laura Kmitch, found that certain hospital quality measures declined. The merger “highlights the problems that can occur when competition is reduced,” the authors said.

The hospital group, Phoebe Putney Health System, dismissed the findings. “Phoebe has made great strides in enhancing the quality of health care available to the people of southwest Georgia,” Dawn Benson, Phoebe’s general counsel, said in a statement.

To foster competition, Lee County is planning a new 60-bed hospital within the Albany area.
In some cases, state regulators have opposed actions they consider illegal and anti-competitive. In Washington, state officials accused CHI Franciscan Health, based in Tacoma, of using its ties to two doctors’ practices to raise prices and decrease competition on the Kitsap Peninsula, according to a lawsuit filed last year.

The regulators argue that CHI wanted to wield its newfound clout by shifting some operations and imaging from less expensive outpatient settings to hospitals where they could charge more.

“I am all for taking advantage of hospital-based pricing, if we think it is doable in the market and the market can support it,” a CHI executive is quoted as saying in the lawsuit. “It would be great to drop a couple of million more to our bottom line.”

CHI Franciscan said the attorney general’s allegations were “misguided and unfounded.”

In California, Mr. Becerra, the state attorney general, brought a lawsuit against Sutter in March, claiming that its actions led to significantly higher prices in Northern California.

Sutter says it adopted methods encouraged by the federal health care law, by combining hospital services with care delivered outside the hospital to better meet patients’ needs.

But Mr. de Brantes, the health care executive in Connecticut, and others wonder why many mergers were allowed in the first place. “The puzzling part for many of us in the state is why anyone would allow these oligopolies to form,” he said.

Informational Source

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