Which of the following is not true about the merger of two or more healthcare organizations

ABSTRACT

With the increase in health system Mergers and Acquisitions (M&A’s) since the Affordable Care Act [Brown TC, Werling KA, Walker BC, et al. Current trends in hospital mergers and acquisitions. Healthc Financ Manage. March, 2012], health systems must carefully weigh and measure the current organizational culture prior to the consummation of the merger, seeking to understand differentiation within and between the merging organizations, and requires that the organization be analyzed by employee levels or tiers. This study seeks to understand the organizational culture of two merging partners before the merger is consummated, identifying levels of differentiation among employee tiers. Cultural domination from an acquiring organization is also considered. The cultures are analyzed utilizing the Competing Values Framework (CVF). The population included all employees of both health systems with the survey respondent sample stratified by the following employee types: (Tier 1), entry-level employee; (Tier 2), supervisory level, and, (Tier 3), executive level. Statistical procedures included independent t tests and indicated a statistically significant difference between the current cultures of the health systems prior to the merger with significant differences in the cultural perceptions of Tier 1 employees and Tier 2 employees.

The final verdict on hospital networks is in. Despite all of the self promoting ads in the media, hospital mergers increase costs and do not improve quality. The Federal Trade Commission’s (FTC) Director of the Bureau of Economics recently stated that when hospitals merge they face less competition and charge as much 40 to 50 per cent higher prices than if they had not merged or consolidated. The FTC has been challenging hospital mergers in the courts for some time and after a string of failures has won three cases over the past two years. It has also won its first-ever litigated case challenging a health system’s acquisition of a physician group.1 These court wins by the FTC have caused considerable anxiety among hospital executives contemplating mergers.

In 2012 the Robert Woods Johnson Foundation conducted an exhaustive review of studies on hospital consolidation. Their conclusions were:

Hospital consolidation results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets the price increases can be dramatic.
Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.
Hospital competition improves quality of care. This is true under both administered price systems such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however.2

A recent study reported in JAMA of 4.5 million HMO patients concluded that “Organizations in California that are owned by local hospitals or multihospital systems incur significantly higher expenditures per patient than integrated medical groups and IPAs owned by participating physicians.”3

America’s Health Insurance Plans (AHIP), the lobbying and trade group for health insurers has proclaimed “Consolidation promises greater efficiency, but all that ever materializes is greater costs.”4

One economist noted that there have been over one thousand health care mergers and acquisitions since 1994. He noted that they “muffled competition and caused higher prices.” He also called Accountable Care Organizations (ACOs) an “anticompetitive sham” dominated by hospitals implying that these organizations will further exacerbate spiraling health care costs.5

One might ask what took policy makers, scholars, and researchers so long to figure out that hospital mergers would increase not lower costs. The warning signs were present from the very onset of merger mania.

When the former Jewish Hospital of St. Louis merged with Barnes Hospital in 1996 members of the Board of Directors told the medical staff (including myself) that the merger would “improve efficiency through economies of scale.” Shortly after the merger it was clear to any interested observer that just the opposite was happening. Barnes Jewish quickly developed a costly administrative bureaucracy, tore down perfectly good buildings replacing them with new often unnecessary lavish structures, spent enormous sums on marketing, and purchased physician practices at above market value on which they lost money.

Now almost two decades after the board told the medical staff about the merger Barnes Jewish Hospital has become BJC Health Care. It owns 12 hospitals, has 26,000 employees, owns 3,378 physicians and has net revenue of approximately $4 billion. BJC is not unique. It is just one of many similar hospital mergers have occurred throughout the U.S.6

After the Barnes Jewish merger I wrote a number of articles contending that the basic reason that hospitals were merging was not to improve efficiency and lower costs but to form monopolies and increase prices. I also wrote about how the Federal Trade Commission played a pivotal role in orchestrating this system that allowed hospital monopolies to flourish. These articles were compiled into two books.7

Since the FTC has been successful in preventing mergers in only three hospitals, what can be done with all of the hospitals that are already merged? Or as one pundit put it, “What can be done now that the horse has already left the barn?” The answer is probably very little. Hospitals are among the most powerful lobbying groups in the country.

It is quite understandable for physicians to feel little sympathy for the FTC in its fight against hospital mergers. Its actions are too little and too late. Furthermore the FTC has a track record that has been fundamentally hostile to physicians. The FTC successfully sued the American Medical Association in an administrative law court where it acted as prosecutor, judge, and jury and removed one of the AMA’s Principles of Medical Ethics so that it could impose its own version of “free market competition” on the medical profession. At that time there were many who said that the FTC “was out to get the doctors.”8

This harsh evaluation of the FTC was confirmed by the FTC’s subsequent actions. The FTC vehemently opposed legislation introduced in Congress and backed by the AMA that would have allowed doctors to collectively bargain. The FTC position on doctors was clear. The FTC stated “Physician collective bargaining leads to higher prices and is unlikely to likely to result in higher quality care.”9

Finally when clinically integrated physician-owned groups tried to bargain with health insurance companies like hospital integrated systems do, the FTC signed more than 30 consent agreements involving price fixing by groups of physicians, which in its opinion were not properly integrated or engaged in substantial risk sharing. It is not clear what risk sharing is and the AMA tried unsuccessfully to get the risk sharing requirement removed.10

When a new drug or a new procedure is introduced into medicine studies are done to determine their effectiveness. Lamentably, the FTC doesn’t operate in this fashion. The FTC has based its policies on its own arbitrary, rigid, self-made and often biased rules which carry the force of law. The FTC never conducted studies to determine whether clinically integrated physicians groups might be more cost effective than hospital integrated systems. The recent study in JAMA of 4.5 million patients, which showed that hospital-owned organizations have significantly higher costs than physician-owned integrated systems or IPAs fundamentally undermines the FTC position on physician run organizations.3 The FTC should have undertaken similar studies years ago.

Competition has been the guiding principle in health system reform over the past three decades. The theory was that through competition health care costs would decrease and quality would improve. This theory hasn’t been proved or disproved because it hasn’t been tried. From the very beginning of health system reform, hospitals have done everything in their power to form mergers, create monopolies and avoid competition.

The United States is under tremendous pressure to reduce health care costs. Now that the truth about hospital mergers as a major driver of health care costs has been exposed we’ll have to wait and see if anything is done to correct the problem. It is doubtful that antitrust lawsuits by the FTC alone will have much impact.

1. Pear Robert. FTC Wary of Mergers by Hospitals. New York Times; Sep 17, 2014. [Google Scholar]

2. Gaynor Martin, Town Robert. The Synthesis Project. The Robert Woods Johnson Foundation; Jun, 2012. The impact of hospital consolidation-Update. [Google Scholar]

3. Robinson James, Miller Kelly. Total Expenditures per Patient in Hospital-Owned and Physician-Owned Organizations in California. JAMA. 2014 Oct 22–29; [PubMed] [Google Scholar]

4. Japsen Bruce. Insurers Fight Hospital Mergers as ACA Snubs Fee For Service Medicine. Pharm and Health Care. 2014 Sep 14; [Google Scholar]

5. Bird Julie. Health Care mergers don’t improve quality, experts warn, analysis of American Enterprise Institute Panel. Fierce healthcare. 2013 Mar 4; [Google Scholar]

6. Home page, BJC HealthCare. 2014 Sep 25; [Google Scholar]

7. Gale Arthur. The Hijacking of American Medicine by the Federal Trade Commission. 2009. The Hijacking of American Medicine by Managed Care, 2004. [PubMed] [Google Scholar]

8. Gale Arthur. The Battle Between the AMA and the FTC for the Soul of Medicine. Missouri Medicine. 2009 Nov-Dec; [PubMed] [Google Scholar]

9. Gale Arthur. The Hijacking of American Medicine by the Federal Trade Commission and the Department of Justice. Missouri Medicine. 2009 Mar-Apr; [PubMed] [Google Scholar]

10. Gale, Arthur, Ibid.