Hospital Merger Trends

Hospital chains have been consolidating for years. Given how tight capital markets are these days one would expect that there would be fewer deals now.

Bzzz. Wrong answer.

The large chains are having less trouble dealing with their debt than smaller rivals, so it is easier for them to snap up relatively smaller entities opportunistically. The Tennessean (courtesy FierceHealthcare) suggests it may be partly due to the increase in un-reimbursed services to the uninsured. But a Chicago Tribune article points out that the kinds of savings you would expect from economies of scale do not appear in hospital charges. While prices have not gone up (that would get regulators paying attention), it is possible expenses have gone down. Increased margins means dividends for stockholders and cheap capital for not-for-profits.

The FTC is looking at unfair market practices in Evanston, Illinois and Virginia and even in rust-belt Pennsylvania, questions are being raised. The FTC's effectiveness is in question and vulnerable to counterattacks that the mergers are necessary for the health of the population and the area's ability to attract doctors.

Since primary care doctors do not usually practice in hospitals and primary care is the only segment of medical care (as distinct from public health) that improves the health of populations (as opposed to individuals), I would submit there is no impact of hospitals on the health of the communities where mergers leave a single dominant hospital provider, nor are the kinds of doctors they attract relevant.

The FTC should shut down bad mergers. On the other hand, the government could support market forces by encouraging better management and easier access to capital for community hospitals.