Health-system consolidation brings fewer choices, FTC scrutiny

Andis Robeznieks , Senior News Writer

In the midst of uncertainty in health care, continuing consolidation is one thing that can be expected to continue, but government scrutiny may be changing how it occurs.

It appears that more and more of the nation’s health care industry rests in fewer hands, according to C. Edward Brown, CEO of the Iowa Clinic in West Des Moines, who spoke at a recent physician education session.

“Consolidation is not making health care better, it’s just making larger systems where patients and physicians are being left out,” said Brown, and this could spur a health system “death spiral.”

Brown described how this spiral includes systems seeking to expand their market share by acquiring physician practices and starting population-health initiatives.

“I’ve seen many hospitals that simply don’t know how to manage the physician practices they’ve acquired and the first thing they do is fire the practice’s management team, take away ancillaries and then blame physicians for losing money,” Brown said.

Hospitals experience further revenue loss due to reduced hospital admissions as part of an effort to achieve accountable care savings. When revenue declines, hospitals try growing their market share, which requires additional capital expenditures, and the repetition of this cycle sets in motion a health system death spiral, said Brown, who spoke during a session at the 2017 AMA Annual Meeting.

Brown quoted from a new report on hospital consolidation by the AMA Council of Medical Services.

“The AMA strongly supports and encourages competition among all health care entities (e.g., hospitals, health insurers and physician practices) as a means of promoting high-quality, cost-effective health care,” states the report, which was approved by the AMA House of Delegates a few days later. “A competitive marketplace provides more choices to physicians and patients, and stimulates innovation in health care.”

Brown went on to cite statistics that show how 90 percent of hospital markets are considered “highly concentrated” and 70 percent of hospitals are part of a health system. This consolidation reduces practice options for physicians and lowers the competition which leads to innovation, he said.

“Health system mergers focus on the business side—not clinical practice management,” Brown said.

The session in which Brown spoke was hosted by the AMA Integrated Physician Practice Section (AMA-IPPS). In the session description, the IPPS cited a recent JAMA Forum essay on consolidation written by Ashish Jha, MD, MPH, which notes that health care’s “consolidation frenzy” is a key underlying cause of market dysfunction.

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Dr. Jha, a professor at the Harvard School of Public Health and an internist at the Veterans Affairs Boston Healthcare System, had also written an earlier JAMA Forum article on the same subject. In that July 2014 post, Jha noted how the idea that hospital mergers lead to better care hinges on the argument that consolidation creates higher-volume, more integrated institutions that produce better outcomes and can afford to make investments—such as health information technology—that improve quality.

Hospital care is the “biggest single bucket of health care costs,” and evidence shows that consolidation leads to higher costs, so—naturally—the federal government is looking closer at these deals, Sean May, vice president of the Boston-based Charles River Associates (CRA) consulting firm, said at the session.

Sidney Welch, MPH, chair of the Healthcare Innovation practice of the Kanas City, Missouri-based Polsinelli law firm, said that 47 percent of Federal Trade Commission (FTC) enforcement actions in 2016 took place in the health care industry. These included blocking mergers between hospitals and health insurance companies.

May said that the FTC’s antitrust enforcement has focused on price increases and that courts have “generally dismissed” hospital arguments on gaining efficiency.

In 2009, the FTC released retroactive studies of four consummated hospital mergers which indicated that “price increases are not uncommon following mergers.” May, however, suggested the landscape could be changing.

He presented findings of CRA research that showed annual operating expenses per admission declined 2.5 percent at the 375 hospitals that were acquired between 2009 and 2014. The effect on quality, however, was “generally small and statistically insignificant,” in terms of mortality and readmission for heart attack, heart failure and pneumonia.

Brown said health systems are concentrating on economics, so “patient-focused care is taking a back seat.”

He suggested hospital CEOs need to pour physicians into their leadership management and that physicians should engage in that leadership to drive strategy. If hospitals are trying to move to value and to patient-centric models of care, he said, they will need physician leadership to succeed.