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What's Up, Doc?

Employers must not shrink from asking if their costs will rise after merger deals are done.

As a business owner, it’s likely that at some point you thought about merging with, acquiring or being acquired by a competitor. Chances are you didn’t think about those options to help your customers; you thought about it to improve your financial situation. You thought you could add market share. You thought you could expand or improve service lines. You thought you could lower operating costs and increase profit margins. You thought you could cash out while the getting was good.

Would any of that be different if you ran a hospital, health system or physician practice, and the business you were in was providing health care services to patients?

I would argue the answer is no. Health care is no different from any other industry when it comes to the economic drivers of business decisions, particularly as they pertain to mergers and acquisitions.

As purchasers of health care services, directly or indirectly through their health insurance carriers, employers must become more than casual observers of the provider consolidation taking place in their markets. Employers must become aggressive health care consumers and ask the tough questions about what economic motives are lurking behind a proposed hospital merger or physician practice acquisition.

Most importantly, employers need to ask point-blank whether the proposed merger or acquisition will lead to higher prices for the health care services sold by the partnering organizations. And they must be prepared to ask that uncomfortable question repeatedly until they get an answer.

Hospital executives and physician practice administrators typically will dance around the topic with promises of economic efficiencies and service improvements that they say ultimately will benefit the business community. As you know, being more efficient and offering better service often are rationalizations for arbitrary price increases in other industries. Why not health care?

Historically, the task of scrutinizing the economic impact of hospital mergers and physician practice acquisitions has fallen to health insurance companies, which pay the claims and are in the best position to know whether health care consolidation leads to higher prices for health care services. But who weeps when health insurers cry? Not too many, as their complaints often are dismissed as the greedy whining of corporate middlemen trying to protect their cash flow and reserves.

But people—especially state and federal regulators—will listen to business leaders. That’s why employers must replace health insurers as the grand inquisitors of hospital, health system and physician practice consolidation in their markets.

And there is ample opportunity and reason to ask.

Although the number of hospital mergers and acquisitions dipped slightly last year, it was more like taking a deep breath from the brisk pace of hospital consolidation that started with the passage of the Patient Protection and Affordable Care Act in 2010 (see chart). Hospitals are responding to the payment reform mechanisms in the ACA by building bigger hospital systems, and, assuming the ACA isn’t going anywhere soon, more mergers and acquisitions are expected this year. The same is true for physician practices, which are merging with each other or selling themselves to hospitals and health systems.

 

 
 

In July, two well-known health services researchers writing in the Journal of the American Medical Association (bit.ly/1sVcZ7b) said hospital systems that get bigger via mergers don’t necessarily provide better care. They said: “Higher health care costs from decreased competition should not be the price society has to pay to receive high-quality health care.”

In February, the National Academy of Social Insurance released a 44-page report (bit.ly/1BZVx5G) that said, “There is growing evidence that hospital-physician integration has raised physician costs, hospital prices and per-capita medical care spending.”

Unless employers want to keep footing the bill, they need to raise their hands and ask the question: Will you or won’t you raise prices after your hospital merger? Yes or no?

Short Take

The health insurance market is being flooded with new health plans and their dizzying array of benefit designs, premium levels and provider networks. Curious employers may be tempted to try one, hoping to reduce benefits costs while still offering competitive health coverage to workers. But a new study by the National Bureau of Economic Research suggests that employers might be wise to stick with what they know—at least until the savings dry up (bit.ly/1GYYFjb). The study is based on claims data from 13 million employees of 54 large U.S. companies. It found that the employees of companies that switched to consumer-directed health plans (CDHPs) spent less on health care services than did employees at companies that didn’t. The spending gap lasted for at least three years, though it narrowed over time. Specifically, employees with CDHPs spent 6.6 percent, 4.3 percent and 3.4 percent less, respectively, in the first three years than employees that didn’t have CDHPs over that same period. The researchers attributed the savings to less consumer-directed spending on outpatient care and prescription drugs. The lesson for employers is this: If you decide to go with CDHPs, stick with it for as long as you can and enjoy the premium savings that come with workers using fewer health care services.

Update

In the May column, we talked about patient safety and the responsibility of employers to steer workers to the safest hospitals and doctors possible (bit.ly/1OAg872). We cited a number of national resources that employers can tap to learn about the clinical performance record of their local health care providers. Minnesota employers are particularly blessed with resources to educate themselves on the patient safety record of hospitals, ambulatory surgery centers and physician offices. In addition to the Minnesota Department of Health, which releases an annual report on patient safety violations, employers here have access to information provided by the following three patient safety organizations:

  • Minnesota Alliance for Patient Safety, which was founded by the state health department, Minnesota Medical Association and the Minnesota Hospital Association (bit.ly/1abPVZO).
  • Minnesota Health Action Group, which represents the health care interests of employers and other major purchasers of health care services (bit.ly/1Cswx16).
  • Minnesota HealthScores, which is a community-based not-for-profit that represents the interests of patients and individual health care consumers (bit.ly/1y92Hnl). With such patient-safety bench strength, there really is no reason for a company to plead ignorance if one of its employees is the victim of shoddy care at a hospital, ambulatory surgery center or physicians’ office with a known record for low-quality service.

David Burda (@davidrburda, dburda@msp-c.com) is editorial director, health care strategies, for MSP-C, where he serves as the chief health care content strategist and health care subject matter expert.

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