Nearly 60 percent of patient days at acute-care hospitals belong to people covered by Medicare, Medicaid or Medicare Advantage. Not one of those patients is likely to see a price change when two hospitals merge.
That figure sits at the center of a new Kaufman Hall report, and the American Hospital Association is using it to argue that antitrust reviews of hospital deals are too narrow. Prices for Medicare and Medicaid patients are set by government payers, or in the case of Medicare Advantage and Medicaid managed care are based on government-set rates. Yet conventional merger analysis, the AHA says, gives “outsized attention to only one potential effect on one segment of patients,” the higher negotiated rates commercial insurers pay.
The report says regulators should take a “comprehensive analysis” that weighs effects on all patients served, looks beyond pricing, and asks what happens if a deal is not allowed to proceed.
When deals fall through
Kaufman Hall looked at 88 proposed deals that were ultimately canceled. A year later, the hospitals that had been in line to be acquired showed a median 50 percent drop in operating profit margin and a 38 percent drop in days cash on hand. Labor compensation ratios fell, and the average age of their plant rose.
The report does not claim every canceled deal caused the decline. Many of the hospitals were already under financial strain. The AHA’s reading is that this is the point: struggling hospitals look for partners because they need capital, scale or operational help, and a blocked deal does not return anyone to a neutral starting line.
The communities involved tend to be more vulnerable as well. An analysis of 88 hospital transactions since 2006 found that hospitals seeking to be acquired served communities more vulnerable than those of their prospective buyers, and more vulnerable than the national average. Among the targets in 12 recently challenged transactions, a majority had gone through a facility closure, workforce reduction, service closure, bankruptcy or quality downgrade in the four years before the proposed deal. Kaufman Hall also found that potential acquirees on average served a higher share of Medicare and Medicaid patients than their acquirers.
Counting hospitals is not measuring competition
The report also challenges the assumption that two hospitals in one community compete head to head on everything. Kaufman Hall studied 221 counties with exactly two short-term acute-care hospitals under separate ownership. Service line by service line, the two often had very different portfolios, with one handling most of the volume for some services and the other concentrating elsewhere. A simple hospital count, the report suggests, can miss whether two facilities are close substitutes, whether they complement each other, and whether a merger could preserve services one of them could not sustain alone.
Chad Golder, the AHA’s general counsel and secretary, wrote about the findings in a blog post. “Hospital mergers receive careful antitrust review,” he wrote. “But careful review is not the same thing as narrow review.” In his view, the question is what a deal, or its failure, means for patients: whether services remain available, whether hospitals can invest in their workforce and facilities, and whether local communities keep their access to care.
