Health System Mergers Result in Modest Savings

Health care mergers often take place in an effort to lower costs, however, hospitals and health systems that have recently merged found that although savings did occur, it was not as vast as they expected, according to a new report.

For the report, the National Bureau of Economic Research reviewed 1200 hospitals during a six-year period from 2009 to 2015. 

The results of the analysis allowed the researchers to estimate the effects of horizontal hospital mergers on marginal cost efficiencies along with investigating underlying “buyer power” economic mechanisms.

Oftentimes, organizations that are part of a merger or acquisition claim that cost reductions and economies of scale result in savings. 

According to the research,  hospitals on avergae save roughly 1.5% per year on common expenses ranging across costs for 47 supply categories. Further, on a yearly basis, a buyer hospital pays an average of $302 or more. Although, they do save roughly 6.4% on inexpensive commodities, that is balanced by a 1.1% rise in physician preference item costs.

According to these figures, acquired hospitals only save roughly 10% of the amount that may be claimed in a merger justification, according to the study and acquirers save 0% of that initially-touted figure. 

Further, the reduced costs for physician preference items was about 2.6%.

The researchers noted, however, that the type of merger does matter. 

For example, physician preference item savings were 5.2% at hospitals acquired by independent facilities or smaller health systems compared with acquisitions by larger systems that yielded a number of just 3.7%.

Despite minimal health care savings, since the second quarter of 2018, health care stakeholders have announced 255 health care merger and acquisition deals, according to a report from the Health Research Institute at Pricewaterhouse Coopers. 

According to the report, compared to the same time period of the year before, deal volume increased by roughly 9.4%. 

Hospital mergers are expected to continue and remain a constant focus of the Federal Trade Commission merger investigations.

—Julie Gould