Hospital consolidations tend to raise prices, change priorities, studies find

Hospital consolidations generally aren’t great news for consumers, resulting in higher prices and a drop in some areas in quality of care, according to an ongoing national study by the Robert Wood Johnson Foundation.

A second study concludes that for-profit hospital systems are more likely than nonprofits to focus on highly profitable services.

The Synthesis Project, which the RWJ Foundation began in 2006, examines research on whether hospital consolidations impact consumer prices and affect quality of care across the United States. It’s 2012 findings concluded that when hospitals merge in concentrated markets, health care costs rise sharply – often more than 20% -- and the increases are passed on to consumers in the form of higher insurance premiums. The research does not distinguish between for- and nonprofit hospital mergers.

The Project reviewed studies throughout the U.S. and in England, finding that in most -- but not all -- cases, hospital mergers drove up prices. A 2009 study cited in the report found that a merger between hospitals in Wilmington, N.C., resulted in higher prices for 3 of 4 health insurers between 2001 and 2003, though prices actually dropped in another merger cited in the study.

The various studies found that when a hospital system gains too much market share, it has less incentive to keep prices down.

The RWJ study suggests that competition leads to a higher quality of care in hospitals – when prices are determined by the government (as in Medicare). However, the evidence is not clear when it comes to hospitals that set their own prices. The study concludes that when hospitals are faced with tough competition, they’ll compete on whatever brings in the most patients, whether that’s quality or price.

As for whether for-profit hospital systems offer the same level of service as nonprofit systems, some research suggests they focus on the medical procedures and services that yield the highest revenues.

A study published in 2007 concluded that for-profit hospitals tend to ‘’avoid’’ unprofitable patients; that they “up-code,” or inflate a diagnosis in order to receive a higher reimbursement, and that they invest in the services that also bring in the most money, such as open heart surgery and other cardiac care.

Home health care also yielded big revenues for hospitals in the 1990s, but for-profits capitalized on the trend toward community-based care more than nonprofit and government hospitals. From 1988 to 1996, the likelihood of a for-profit hospital offering the service more than tripled (from 17.5% to 60.9%) compared with government hospitals, which grew their home health care business by 14%, and nonprofits, which grew by 10%, the study found.

Conversely, for-profits are less likely than nonprofits, including government hospitals, to offer services that are not profitable, such as emergency psychiatric care, the study showed. “At least in comparison to for-profits, government and nonprofit hospitals prioritize goals other than profit-making,” the study found.