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 evaluation arguing that hospital mergers injury 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 “lease in search of actions” by hospitals in search of to make use of their financial energy to extort monetary beneficial properties from their communities with out offering any worth.
The Brot-Goldberg-Cooper evaluation was a spin-off of a bigger examine decrying the dearth of federal anti-trust enforcement concerning hospital mergers. These two research used the identical financial mannequin. The info have been derived from the Healthcare Value Institute, a repository of business insurance coverage claims info from three of the 4 largest business 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 business medical 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 varied domains of those knowledge.
Utilizing HCCI’s knowledge, the authors assemble what they termed a “causal chain” main from hospital mergers to neighborhood injury 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 accordance with the logic, hospital mergers kill individuals. Utilizing the identical methodology, the authors argued that between 2007 and 2014, hospital value will increase of all types killed ten thousand individuals.
A traditional drawback with correlational research of this sort is their failure to make clear the path of causality of knowledge parts. 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 may 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 line with the mannequin, these mergers resulted in a mean improve of 1.2% in hospital costs to business 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 line 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 massive overage was not defined by the authors. Furthermore, the layoffs passed off virtually instantly, in the identical yr because the merger-induced will increase, regardless that many medical 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 purpose 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 troublesome to know the place to start to unravel this advanced net of “associations”. The most important 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 value improve is in opposition to a well being profit that quantities to about 9%, on common, of the pattern employers’ whole compensation prices.* So, 1.2% improve of a 9% value is an precisely one tenth of 1% (.001) improve in employer’s whole compensation expense. Payroll and advantages are in flip maybe 50-70% of an employer’s whole working expense. A one-tenth of a % improve in employment prices is a mosquito chunk, 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 modifications in Well being Financial savings Account enrollment within the pattern in the course of the 5 yr examine interval. After greater than quadrupling from 2006 to 2011, progress 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 line 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 consequences of any business medical insurance fee will increase, no matter their dimension, have been possible shared broadly throughout your complete lined 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. And so they have a variety of choices to keep away from doing so: elevating costs, reducing hourly employees’ hours, shifting employees from staff to contractors (dodging advantages bills altogether), pressuring different suppliers for reductions, bettering productiveness, discovering new clients, and “shrinkflation” of their product (e.g. a half-ounce smaller Almond Pleasure bar for a similar value ). 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 objective of the mergers, then a mean 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 they’d elevated bargaining energy, why not cost 10% or 20% extra after merging? In line 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 advanced 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, techniques integration consultants to get their totally different “cases” of EPIC to speak and out of doors consultants to help in operational enhancements, and many others), not to mention yield any precise money movement to the merged entity.
What Induced the Deaths?
As for the ultimate leap -that one in 140 of the employees presumably laid off by these employer reductions in power kills themselves or overdose on medicine–authors made no traceable efforts to tie these deaths to the businesses allegedly shedding employees. Right here, particularly, the absence of management teams makes it unattainable 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 related communities.
The authors didn’t management for the opposite components 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, faculties, or neighborhood primarily based companies, declining availability of psychological well being companies or the sudden arrival of lethal fentanyl within the native market.
Bear in mind the authors intentionally oversampled city markets. Most of the city counties lined within the examine (Cook 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 Induced the Mergers within the First Place?
I’m an skilled 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 yr 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 id until compelled to by financial circumstances.
The truth is most hospital mergers aren’t actually mergers in any respect, they’re acquisitions of a poorly performing unbiased 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 larger ranges of Medicare funding as a proportion of whole predispose hospitals to failure and, subsequently, merger. An extreme focus of Medicaid and uninsured sufferers has an much more antagonistic affect. Value shifting to employers, and charging these employers extra is the one manner economically challenged hospitals can recuperate their losses. The authors didn’t measure or assess the position that antagonistic payor-mix modifications 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 behind 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 are 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 Alternative Dealing with Communities
Most significantly for my part, the authors made no effort to check the consequences of a merger to that of the lack of the hospital itself. Hospitals are sometimes the neighborhood’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 proportion level.
In contrast, hospital closure in a rural neighborhood can increase the unemployment fee by 1.6 proportion factors–that may be a sixteen-fold better impact. Measuring the unemployment impact in small or massive metropolitan labor markets is tougher however the results of hospital closure can run into the numerous a whole bunch of jobs misplaced, not counting the “multiplier” results on suppliers, business companions and neighboring companies.
Whether or not saving these hospitals was well worth the value 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 insurance fee improve for avoiding the lack of their hospital. Excluding the low census hospitals from their regression runs was the authors’ failed try and 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 worth 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 seek 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 vital drop in prices (-2.5%) per adjusted admission at acquired hospitals, which is in step with the hospitals gaining economies of scale post-merger. There was additionally statistically vital decline (-3.9%) in income per adjusted admission, which casts doubt upon the ‘mergers result in larger costs’ speculation.
Adequacy of Hospital Capability a Urgent Concern
Throughout the 1970’s, federal well being coverage in United States centered on controlling the availability of hospitals and hospital beds within the US, believing that efforts to fill empty beds have been a serious driver of well being value progress, then in double digits. On the time of Can Hospitals Survive, 30% of hospitals have been already a part of techniques. Since that point, practically a thousand hospitals have closed, and the proportion of hospitals which are a part of multi-hospital techniques 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, at this time 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 nations. Throughout the pandemic, many communities skilled crucial shortages of hospital ICU beds, ER capability, and many others. and have been housing sufferers requiring intensive medical companies in tents within the parking zone.
Confronted with a alternative between merging struggling hospitals into bigger techniques and dropping 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 techniques can not display measurable advantages not solely to acquired hospitals but additionally for the communities they serve, there are going to be severe repercussions for the way forward for Medicare and for the nation’s well being.
This leap from a one-tenth of 1 % 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 rationalization for this odd concentrate on layoffs is what behavioral economists name “affirmation 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 seek out what they got down to discover.
A much less charitable rationalization is that the authors discovered what their funders (e.g. Arnold Ventures) anticipated them to seek out, given the investigators’ previous analysis 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 stated: “When you torture knowledge lengthy sufficient, it’s going to confess to something.” That maxim appeared totally related to the evaluation of merger impacts we’ve got been discussing. In my opinion 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 the way to guarantee entry by struggling communities to hospital companies, nor making these companies extra inexpensive 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 just isn’t 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 writer’s alone. Trevor Goldsmith assisted with analysis on this paper, and Richard Bajner and Keith Pitts supplied 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 private substack
