By JEFF GOLDSMITH
In late June, 2024, two economists, Zarek Brot-Goldberg and Zack Cooper, from the College of Chicago and Yale respectively, launched an financial analysis arguing that hospital mergers harm native economies and lead to a rise in deaths by suicide and drug overdoses within the markets the place mergers happen. Funded by Arnold Ventures their examine characterizes these mergers as “hire in search of actions” by hospitals in search of to make use of their financial energy to extort monetary good points from their communities with out offering any worth.
The Brot-Goldberg-Cooper evaluation was a spin-off of a bigger study decrying the dearth of federal anti-trust enforcement concerning hospital mergers. These two research used the identical financial mannequin. The information have been derived from the Healthcare Cost Institute, a repository of business insurance coverage claims data from three of the 4 largest industrial well being insurers, United Healthcare, Humana and Aetna (a subsidiary of struggling pharmacy large CVS) plus Blue Cross/Blue Defend. HCCI’s contributors account for 28% of the industrial medical health insurance market.
The authors use a posh econometric mannequin to control an enormous, multifactorial knowledge base comprising hospital merger exercise, employer well being advantages knowledge, county degree employment knowledge and morbidity and mortality statistics. This knowledge mannequin enabled a raft of regression analyses trying to ferret out “associations” between the assorted domains of those knowledge.
Utilizing HCCI’s knowledge, the authors assemble what they termed a “causal chain” main from hospital mergers to group harm throughout their examine interval–2010 to 2015. It seemed like this: hospital mergers increase costs for personal insurers-these costs are handed on to employers–who reply by shedding employees–a few of whom find yourself killing themselves. So, in line with the logic, hospital mergers kill individuals. Utilizing the identical methodology, the authors argued that between 2007 and 2014, hospital worth will increase of all kinds killed ten thousand individuals.
A basic downside with correlational research of this sort is their failure to make clear the course of causality of information components. The mannequin lacked a management group–comparable communities that didn’t expertise hospital mergers throughout this era–as a result of the authors argued that mergers have been so pervasive they might not find comparable communities that didn’t expertise them.
The mannequin centered on a subset of 304 hospital mergers from 2010 to 2015, culled from a universe of 484 mergers nationally throughout the identical interval. The authors excluded mergers of hospitals that have been additional than fifty miles aside, in addition to hospitals with low census. The impact of those assumptions was to exclude most rural hospitals and focus the mergers studied in metropolitan areas and cities. The densest cluster was within the I-95 hall between Washington DC and Boston. See the map beneath:
In keeping with the mannequin, these mergers resulted in a median improve of 1.2% in hospital costs to industrial insurers, 91% of which have been handed to their employer clients in these markets. This minuscule fee improve had a curiously centered and outsized impact–a $10,584 improve within the median employer’s well being spending within the merged hospitals’ market.
In keeping with the mannequin, native employers “responded” to this value improve by lowering their payrolls by a median quantity of $17,900, all via layoffs–70% greater than the alleged merger value improve. This huge overage was not defined by the authors. Furthermore, the layoffs passed off virtually instantly, in the identical 12 months because the merger-induced will increase, though many medical health insurance contracts are multi-year affairs, and lock hospitals in to charges for that interval.
On the finish of the “causal chain,” 1 in 140 laid off individuals in these communities for no matter motive killed themselves via suicide or drug overdoses. By extrapolation, the authors accuse the perpetrators of total hospital fee will increase of killing ten thousand individuals within the affected communities throughout seven years overlapping the examine interval.
Failing the Take a look at of Actual World Plausibility
It’s tough to know the place to start to unravel this complicated net of “associations”. The largest puzzle is the magnification of affect of a 1.2% “shock”, because the authors time period it, to well being advantages value on employers. To place this in in perspective, the 1.2% common worth improve is in opposition to a well being profit that quantities to about 9%, on common, of the pattern employers’ complete compensation prices.* So, 1.2% improve of a 9% value is an precisely one tenth of 1% (.001) improve in employer’s complete compensation expense. Payroll and advantages are in flip maybe 50-70% of an employer’s complete working expense. A one-tenth of a p.c improve in employment prices is a mosquito chew, not a “shock”.
The authors’ inferred leap from this micro-increase in employer prices to widespread layoffs is indefensible in comparison with actual world managerial conduct. The authors dominated out the obvious value response–cost-shifting to employees by elevating their deductibles or copayments–on the grounds that they discovered no adjustments in Well being Financial savings Account enrollment within the pattern through the 5 12 months examine interval. After greater than quadrupling from 2006 to 2011, development in HSA enrollment levelled off over the past 4 years of the examine interval.
But employer value shifting to employees by elevating their out-of-pocket spending limits accelerated throughout the identical interval. In keeping with Kaiser/HRET’s annual survey, from 2010 to 2015, the variety of employees with deductibles and co-insurance greater than $2,000 doubled. Thus, the results of any industrial medical health insurance fee will increase, no matter their dimension, have been seemingly shared broadly throughout your entire coated inhabitants within the merger-affected markets.
Most employers going through financial challenges bend over backwards to keep away from parting firm with productive, skilled employees. They usually have a variety of choices to keep away from doing so: elevating costs, slicing hourly employees’ hours, shifting employees from workers to contractors (dodging advantages bills altogether), pressuring different suppliers for reductions, enhancing productiveness, discovering new clients, and “shrinkflation” of their product (e.g. a half-ounce smaller Almond Pleasure bar for a similar worth ). None of those responses have been measured or managed for within the mannequin.
Meager Train of Market Energy
If an anti-competitive train of market energy was the aim of the mergers, then a median 1.2% fee improve struck us as a remarkably meager train of that energy. If merging hospitals have been free to cost what they wished as a result of that they had elevated bargaining energy, why not cost 10% or 20% extra after merging? In keeping with colleagues who work in hospital mergers and acquisitions, transaction prices in a merger can run 3-5% of an acquired hospitals’ annual revenues, and the complicated transaction itself is a big problem.
A 1.2% post-merger fee improve wouldn’t even cowl the transaction prices of the merger (authorized, accounting and actuarial evaluation, deal brokers and funding banker charges, methods integration consultants to get their completely different “situations” of EPIC to speak and out of doors consultants to help in operational enhancements, and so forth), not to mention yield any precise money stream to the merged entity.
What Precipitated the Deaths?
As for the ultimate leap -that one in 140 of the employees presumably laid off by these employer reductions in drive kills themselves or overdose on medicine–authors made no traceable efforts to tie these deaths to the businesses allegedly shedding employees. Right here, specifically, the absence of management teams makes it not possible to find out how a lot contribution, if any, hospital fee will increase or mergers made to the general upward development of deaths of despair within the affected communities, versus different comparable communities.
The authors didn’t management for the opposite elements that result in deaths of despair within the goal communities and which may introduce “covariance” error–divorces, deaths of family members, broad-based declines in employment alternatives, closures of church buildings, colleges, or group primarily based companies, declining availability of psychological well being companies or the sudden arrival of lethal fentanyl within the native market.
Keep in mind the authors intentionally oversampled city markets. Most of the city counties coated within the examine (Prepare dinner County-Chicago, Nassau County-Queens, Wayne County-Detroit, Philadelphia County e.gs) are each huge and rife with city poverty. To tie deaths of despair in these troubled communities to hospital mergers is an egregious case of victim-blaming. The identical forces that result in deaths of despair–the lack of financial alternative and social help–are those harming their hospitals and resulting in their mergers or closure.
What Precipitated the Mergers within the First Place?
I’m an professional in hospital technique. In 1980, I wrote a e-book referred to as Can Hospitals Survive, which predicted a lot of the following consolidation within the business. In my forty 12 months consulting profession, I labored for greater than a dozen struggling hospitals that wished to retain their independence. In my lengthy business expertise, hospital boards and medical staffs don’t willingly give up their autonomy and historic identification until pressured to by financial circumstances.
The truth is most hospital mergers aren’t actually mergers in any respect, they’re acquisitions of a poorly performing impartial hospital or system by a bigger hospital or well being system. No much less an authority on hospital financing than MedPac Chair Michael Chernew discovered that higher levels of Medicare funding as a share of complete predispose hospitals to failure and, subsequently, merger. An extreme focus of Medicaid and uninsured sufferers has an much more opposed affect. Price shifting to employers, and charging these employers extra is the one approach economically challenged hospitals can get better their losses. The authors didn’t measure or assess the position that opposed payor-mix adjustments performed in hospital fee will increase, or analyze its position in inflicting hospitals to merge. They tried, unsuccessfully in my view, to regulate for failing native economies as a reason for mergers, employer layoffs and deaths of despair by excluding low census hospitals from their merger evaluation in addition to excluding most rural hospital mergers. However many hospitals which might be failing are full of publicly funded sufferers whose protection pays 85% or much less of their precise prices, or of sufferers with no insurance coverage in any respect.
Merger or Closure: The Actual Selection Going through Communities
Most significantly in my opinion, the authors made no effort to check the results of a merger to that of the lack of the hospital itself. Hospitals are sometimes the group’s largest employer. The authors estimate that merger-induced fee will increase increase the unemployment fee within the native market across the merged hospital by maybe a tenth of a share level.
Against this, hospital closure in a rural group can raise the unemployment rate by 1.6 percentage points–that could be a sixteen-fold better impact. Measuring the unemployment impact in small or giant metropolitan labor markets is tougher however the results of hospital closure can run into the numerous a whole lot of jobs misplaced, not counting the “multiplier” results on suppliers, business companions and neighboring companies.
Whether or not saving these hospitals was definitely worth the worth paid by a post-merger fee improve is the real-world coverage query. Although this proposition wants empirical testing, I consider that almost all communities would willingly commerce a 1.2% medical health insurance fee improve for avoiding the lack of their hospital. Excluding the low census hospitals from their regression runs was the authors’ failed try to keep away from discussing this tradeoff.
Whatever the situation of the mergee, the authors made a whopping worth judgment in assuming that that the 1.2% common post-merger fee improve was merely extortion, borne of elevated market leverage, not the value paid for persevering with that hospital’s operations in the neighborhood. The authors additionally made no effort to measure post-merger service enhancements, reminiscent of elevated doctor retention or recruitment, administration or capital enhancements or different tangible advantages.
Although some research the authors cite fail to search out value discount or high quality advantages accruing from hospital mergers, newer analyses (for roughly the identical examine interval as Cooper’s) discovered convincing proof {that a} stronger working associate leads to a statistically important drop in prices (-2.5%) per adjusted admission at acquired hospitals, which is in keeping with the hospitals gaining economies of scale post-merger. There was additionally statistically important decline (-3.9%) in income per adjusted admission, which casts doubt upon the ‘mergers result in increased costs’ speculation.
Adequacy of Hospital Capability a Urgent Concern
Through the 1970’s, federal health policy in United States centered on controlling the provision of hospitals and hospital beds within the US, believing that efforts to fill empty beds have been a significant driver of well being value development, then in double digits. On the time of Can Hospitals Survive, 30% of hospitals have been already a part of methods. Since that point, practically a thousand hospitals have closed, and the proportion of hospitals which might be a part of multi-hospital methods has grown to 70% or higher. Hospital inpatient utilization measured by hospital days per thousand has fallen by half since 1980.
In comparison with the Well being Planning statute’s goal of 4 acute care beds per thousand, right this moment the US is at 2.3 beds per thousand. The US now has the twenty sixth lowest ratio of hospital beds to inhabitants of the 28 OECD international locations. Through the pandemic, many communities skilled critical shortages of hospital ICU beds, ER capability, and so forth. and have been housing sufferers requiring intensive medical companies in tents within the parking zone.
Confronted with a selection between merging struggling hospitals into bigger methods and shedding these hospitals–each their service capability and their employment–via hospital closure, the US doesn’t have a margin of error. If the surviving multi-hospital well being methods can’t display measurable advantages not solely to acquired hospitals but additionally for the communities they serve, there are going to be critical repercussions for the way forward for Medicare and for the nation’s well being.
This leap from a one-tenth of 1 p.c improve in employment prices to widespread layoffs and deaths within the affected markets calls into query not solely authors’ methodology but additionally their objectivity. Essentially the most charitable clarification for this odd concentrate on layoffs is what behavioral economists name “confirmation bias,” the unconscious tendency all of us need to ignore knowledge or relationships that don’t verify pre-existing expectations.
Investigators succumbing to affirmation bias have a tendency to search out what they got down to discover.
A much less charitable clarification is that the authors discovered what their funders (e.g. Arnold Ventures) anticipated them to search out, given the investigators’ past research findings and the funder’s desired coverage conclusion, that anti-competitive conduct damages native economies and must be reined in.
In both case, a rigorous seek for precise causes is circumvented, and readers are misled.
Nobel Laureate economics Ronald Coase as soon as mentioned: “When you torture knowledge lengthy sufficient, it should confess to something.” That maxim appeared totally related to the evaluation of merger impacts we’ve been discussing. For my part as a very long time participant/observer of the hospital consolidation course of, the authors made no contribution no matter to fixing the issue of tips on how to guarantee entry by struggling communities to hospital companies, nor making these companies extra reasonably priced to these communities’ residents. Truly working in these communities is a helpful antidote in opposition to being hypnotized by econometric fashions. Blaming hospital mergers for damaging their communities’ economies and killing its residents will not be solely a gratuitous insult to the concerned hospitals and their boards, it additionally strikes us no nearer to a sustainable well being system going ahead.
The analysis underpinning this paper was funded by the Federation of American Hospitals, however the opinions expressed therein are the creator’s alone. Trevor Goldsmith assisted with analysis on this paper, and Richard Bajner and Keith Pitts offered insights into the economics of hospital merger transactions.
Jeff Goldsmith is a veteran well being care futurist, President of Well being Futures Inc and common THCB Contributor. This comes from his personal substack
