Hospital merger benefits: Views from hospital leaders and econometric analysis - An update

September 9, 2019

In 2016, we conducted a two-part analysis of the effects of hospital acquisitions on costs and quality of care. Our research, which included both interviews and econometric analysis, found that hospital acquisitions generated substantial benefits. Our econometric analysis showed that annual operating expenses of acquired hospitals were reduced below those of comparable non-acquired hospitals and were accompanied by commensurate declines in revenue. Modest improvements in hospital mortality and readmission rates were also observed. In our interviews, hospital system leaders identified a variety of mechanisms through which acquisitions reduce costs and improve quality, including the enhancement of scale and furthering of clinical standardization.

Nearly three years later, we revisited our findings. We conducted interviews with ten health systems and extended the econometric analysis to include three additional years (2015-2017) of cost, quality, and revenue data from hospitals. Our updated findings reinforce and strengthen the previous report’s conclusions that hospital acquisitions result in benefits that accrue to patients in the form of better care at reduced cost.

Interviewed hospital executives noted that scale is increasingly critical. In the past, the desire for scale was primarily motivated by a need to reduce costs. Now, the desire for scale has been strengthened by a need to maintain and advance the infrastructure necessary to promote data-driven, value-based care, and align with other components of the health care industry to promote population health. As the health care landscape evolves with the emergence of new competitors focused on advances in information technology and consumer-directed management of chronic disease, traditional independent hospitals frequently benefit from alignment with larger systems to best serve the health needs of their communities.

We also supplemented our previous econometric analysis with data on cost, quality, and revenue outcomes for hospital transactions in 2015-2017. Using this expanded dataset, we found:

  • Consistent with our previous analysis, hospital acquisitions are associated with a statistically significant 2.3% reduction in annual operating expenses at acquired hospitals.
  • Quality is enhanced by hospital acquisitions: our new empirical analysis shows statistically significant reductions in rates of readmission and mortality. This is consistent with health system leaders’ reports on their extensive efforts to use their systems’ data to develop clinical best practices and hold hospitals accountable to measurable outcomes in ways that require scale and resources that individual community hospitals may lack.
  • Revenues per admission at acquired hospitals also decline relative to non-merging hospitals by a statistically significant 3.5%. These results suggest that savings that accrue to merging hospitals are passed onto consumers.
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