Business consolidation is often necessary for businesses looking to grow and expand their reach. However, it comes with a variety of risks. Interviewees reported that consolidation changed geographic access to care, how physicians make referrals, and the healthcare advertising environment. Additionally, they felt that it negatively impacted the economies of surrounding neighborhoods.
Business consolidation often results in increased profits. For example, if a company has several manufacturing plants, it may consolidate by closing one of its locations and transferring its production to the remaining plant. It decreases the number of facilities, reduces overhead costs, and improves communication between departments. In turn, the reduced overhead expenses and improved communication result in increased profits.
Healthcare mergers and acquisitions can also increase profits by improving efficiency and releasing funds that could be used to improve patient care initiatives. In addition, consolidation provides smaller systems with greater negotiating power when contracting with suppliers and vendors, which can lead to cost savings.
However, if large companies dominate their markets, consumers must bear the brunt of any negative impacts from monopolistic pricing. While rate review and tiered-provider networks are essential tools for maintaining competitive marketplaces, more significant data transparency is needed to ensure consumers receive the full benefits of consolidation.
Consolidation can reduce costs in two ways: horizontal and vertical. Horizontal consolidation involves merging companies that produce services that are the same or close substitutes. In healthcare, this often occurs when a large hospital buys a smaller competitor in its service area, such as a community hospital. Those hospitals are closed or converted into a different facility, such as a long-term or subacute care center. Interviewees cited the cost-cutting benefits of healthcare mergers and acquisitions, healthcare acquisitions, including savings from integrating the supply chain management,, accounting, human resources, and other departments. They also noted that consolidated systems can improve efficiency through clinical standardization and reduced capital costs.
However, the benefits of healthcare consolidation often come at a price to patients and local communities. Studies on the impact of hospital mergers typically analyze outcomes at the institutional level rather than the market level, where hospitals have greater bargaining power with insurers. More research on the effects of healthcare consolidation at the market level and improved public data availability is needed to strengthen policies that prevent or mitigate negative consequences.
Hospitals are consolidating for many reasons, including divestiture of non-core assets and a desire to increase profitability. However, while business consolidation may improve profits and reduce debt, it can also lead to redundancies in the workforce and job loss. Mergers decrease costs through various efficiencies, such as capital cost reductions and clinical standardization. Hospital mergers also improve access to care by providing patients with greater access to specialty hospitals and equipment. Nevertheless, many interviewees reported that consolidation had adverse effects, including geographic access to care changes and a lack of transparency and accountability. Increasing the public availability of data would allow a more thorough analysis of the impact of healthcare consolidation and could facilitate the implementation of remedies if necessary. The absence of such information can enable healthcare organizations to abuse their market power, resulting in higher consumer prices. As a result, anti-trust laws have become increasingly crucial for protecting consumer interests.
Often, mergers and acquisitions increase the ability of hospitals to collaborate on joint initiatives. It can lead to patient care and service improvements, which is critical for hospitals struggling with low reimbursement rates and a shift to value-based payments. For instance, one interviewee mentioned how consolidation in a particular State encouraged the emergence of health insurance markets, leading to patient competition. This benefited city residents, as it encouraged choices and improved prices. However, more information is needed on the impacts of vertical and horizontal consolidation to inform state policies and prevent harmful effects on consumers. Greater data transparency, such as all-payer claims databases, would allow advocates to scrutinize mergers more closely and implement necessary remedies. It includes ensuring rigorous reviews of proposed mergers and increased transparency after a transaction is completed to limit pricing power. It’s essential in areas with high levels of concentration. NCSL’s Policy Team will continue to monitor healthcare consolidation and advocate for consumer-oriented policies.