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 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 research characterizes these mergers as “hire in search of actions” by hospitals in search of to make use of their financial energy to extort monetary positive factors 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 relating to hospital mergers. These two research used the identical financial mannequin. The info have been derived from the Healthcare Cost Institute, a repository of business insurance coverage claims info from three of the 4 largest industrial well being insurers, United Healthcare, Humana and Aetna (a subsidiary of struggling pharmacy big 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 making an attempt 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 neighborhood injury throughout their research interval–2010 to 2015. It seemed like this: hospital mergers elevate costs for personal insurers-these costs are handed on to employers–who reply by shedding staff–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 type 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 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 under:
In keeping with the mannequin, these mergers resulted in a mean improve of 1.2% in hospital costs to industrial insurers, 91% of which have been handed to their employer prospects in these markets. This minuscule price 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 price improve by lowering their payrolls by a median quantity of $17,900, all by way of layoffs–70% greater than the alleged merger price improve. This huge overage was not defined by the authors. Furthermore, the layoffs befell nearly instantly, in the identical 12 months because the merger-induced will increase, despite the fact that 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 purpose killed themselves by way of suicide or drug overdoses. By extrapolation, the authors accuse the perpetrators of total hospital price will increase of killing ten thousand individuals within the affected communities throughout seven years overlapping the research interval.
Failing the Take a look at of Actual World Plausibility
It’s troublesome to know the place to start to unravel this complicated net of “associations”. The largest puzzle is the magnification of influence of a 1.2% “shock”, because the authors time period it, to well being advantages price on employers. To place this in in perspective, the 1.2% common value improve is towards 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% price 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 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 price response–cost-shifting to staff by elevating their deductibles or copayments–on the grounds that they discovered no modifications in Well being Financial savings Account enrollment within the pattern through the 5 12 months research interval. After greater than quadrupling from 2006 to 2011, progress in HSA enrollment levelled off over the last 4 years of the research interval.
But employer price shifting to staff 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 staff with deductibles and co-insurance greater than $2,000 doubled. Thus, the results of any industrial medical health insurance price will increase, no matter their measurement, have been seemingly shared broadly throughout the 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 staff. And so they have a variety of choices to keep away from doing so: elevating costs, chopping hourly staff’ hours, shifting staff from workers to contractors (dodging advantages bills altogether), pressuring different suppliers for reductions, enhancing productiveness, discovering new prospects, 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 purpose of the mergers, then a mean 1.2% price 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 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 large problem.
A 1.2% post-merger price improve wouldn’t even cowl the transaction prices of the merger (authorized, accounting and actuarial evaluation, deal brokers and funding banker charges, programs integration consultants to get their totally different “situations” of EPIC to speak and outdoors consultants to help in operational enhancements, and many others), not to mention yield any precise money move to the merged entity.
What Brought about 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 staff. Right here, specifically, the absence of management teams makes it inconceivable to find out how a lot contribution, if any, hospital price 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 that may introduce “covariance” error–divorces, deaths of family members, broad-based declines in employment alternatives, closures of church buildings, colleges, or neighborhood primarily based providers, declining availability of psychological well being providers or the sudden arrival of lethal fentanyl within the native market.
Keep in mind the authors intentionally oversampled city markets. Lots of the city counties lined within the research (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 assist–are those harming their hospitals and resulting in their mergers or closure.
What Brought about the Mergers within the First Place?
I’m an skilled in hospital technique. In 1980, I wrote a e book known 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 except 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 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 proportion of whole predispose hospitals to failure and, subsequently, merger. An extreme focus of Medicaid and uninsured sufferers has an much more antagonistic influence. Price shifting to employers, and charging these employers extra is the one means economically challenged hospitals can get well their losses. The authors didn’t measure or assess the function that antagonistic payor-mix modifications performed in hospital price will increase, or analyze its function 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 Dealing with 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 neighborhood’s largest employer. The authors estimate that merger-induced price will increase elevate the unemployment price within the native market across the merged hospital by maybe a tenth of a proportion level.
Against this, hospital closure in a rural neighborhood can raise the unemployment rate by 1.6 percentage points–that may be a sixteen-fold larger impact. Measuring the unemployment impact in small or massive metropolitan labor markets is tougher however the results of hospital closure can run into the various 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 definitely worth the value paid by a post-merger price improve is the real-world coverage query. Although this proposition wants empirical testing, I imagine that the majority communities would willingly commerce a 1.2% medical health insurance price 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 price improve was merely extortion, borne of elevated market leverage, not the worth paid for persevering with that hospital’s operations locally. The authors additionally made no effort to measure post-merger service enhancements, comparable to elevated doctor retention or recruitment, administration or capital enhancements or different tangible advantages.
Although some research the authors cite fail to search out price discount or high quality advantages accruing from hospital mergers, more moderen analyses (for roughly the identical research interval as Cooper’s) discovered convincing proof {that a} stronger working companion leads to a statistically important 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 important decline (-3.9%) in income per adjusted admission, which casts doubt upon the ‘mergers result in greater costs’ speculation.
Adequacy of Hospital Capability a Urgent Concern
Throughout the 1970’s, federal health policy 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 significant driver of well being price progress, then in double digits. On the time of Can Hospitals Survive, 30% of hospitals have been already a part of programs. Since that point, practically a thousand hospitals have closed, and the proportion of hospitals which might be a part of multi-hospital programs 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, immediately 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 critical shortages of hospital ICU beds, ER capability, and many others. and have been housing sufferers requiring intensive medical providers in tents within the parking zone.
Confronted with a selection between merging struggling hospitals into bigger programs and dropping these hospitals–each their service capability and their employment–by way of hospital closure, the US doesn’t have a margin of error. If the surviving multi-hospital well being programs can’t exhibit 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 rationalization for this odd deal with 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 rationalization 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: “If you happen to torture knowledge lengthy sufficient, it’s going to confess to something.” That maxim appeared totally related to the evaluation of merger impacts now we have 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 easy methods to guarantee entry by struggling communities to hospital providers, nor making these providers extra reasonably priced to these communities’ residents. Truly working in these communities is a helpful antidote towards 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 personal substack
