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Hospital Mergers May Be Good for Business, But Patients Don't Always Benefit

En español l Wilson Medical Center has served the residents of the small, leafy town of Wilson, N.C., for almost 50 years. But now this profitable 294-bed hospital — the only hospital in the county — may have to become affiliated with a larger medical system.

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Butch Martin/Getty Images

What’s the impact on patients when smaller hospitals merge?

Rick Hudson, Wilson's chief executive, has hired a consulting firm to advise the hospital on its options. He thinks the hospital may not survive if it remains independent. "It would be malpractice on my part as the CEO not to do what I can to make this hospital thrive and grow."

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Wilson is part of a sweeping national trend that has hospitals making vital changes — from joint operating agreements to outright takeovers by larger hospitals and hospital systems.

Facing tremendous pressures to cut costs, hospitals also are forming partnerships with doctors' practices and other health care providers — all of which means medical care is becoming more concentrated in fewer institutions.

What can patients in Wilson — and other communities — expect when their familiar local hospital suddenly has a big new partner?

Higher prices for patients

While hospitals typically maintain they are merging or affiliating for greater efficiency, higher quality of care and increased savings, the most common consequence for patients is higher prices for medical care, according to several decades of research.

A hospital merger boom in the 1990s, for example, increased patient costs by 5 to 40 percent in areas where only a few hospitals dominate, according to the Robert Wood Johnson Foundation. Large systems with a number of hospitals tend to charge higher prices in communities where they outnumber their rivals, says health economist James C. Robinson of the University of California, Berkeley.

But Delos Cosgrove, M.D., president and CEO of the Cleveland Clinic, which now has an extensive hospital system, champions the wave of mergers and acquisitions as a way to improve patient care and expand services.

Here's a look at what millions of patients in small towns and big cities across the country are facing as U.S. hospitals undergo fundamental changes.

What's happening to our hospitals?

Independent hospitals like Wilson are going the way of the corner drugstore and neighborhood bank — with many taken over by a larger rival or by a chain.

More than 100 hospital deals took place in 2012, double the number just three years earlier. Of the 5,724 hospitals in the United States, about 1,000 will have new owners in the next seven years or so, predicts Gary Ahlquist, a senior partner with the consulting firm Booz & Company. And hospitals that want to remain independent will have a harder time staying afloat.

"The days of the stand-alone community hospital, in large part, are numbered," says Larry Scanlan, author of Hospital Mergers: Why They Work, Why They Don't. He compares today's independent hospitals to the beloved hoagie sandwich shops that once dotted Philadelphia streets: "The hoagie shop has disappeared. If you want a hoagie now, you go to Subway."

Next page: Why is this happening? »

Why is this happening?

Hospitals, already under intense pressure to lower costs and improve care, have been losing patients. More and more surgeries are performed in clinics and doctors' offices, so the patient doesn't spend the night in the hospital.

The recession also cut the number of hospital patients as people put off treatment, according to Caroline Steinberg, a vice president with the American Hospital Association. Left with too many empty beds, hospitals again began to consolidate with hospitals and doctors in 2010. (Hospitals that hire physicians see an increase in patients, who come to see their doctors for everything from tests to outpatient surgeries.)

"The logo on the front of the hospital might change, but as long as your doctor has privileges there, ownership may not matter much."

Proponents of the Affordable Care Act, which is bringing millions of new patients into the health care system and into hospitals, say it aims to promote competition and lower the costs of care. To rein in health care costs, however, the law reduces the rate of growth in Medicare payments to hospitals.

And importantly, it also provides incentives for hospitals to hire or form more partnerships with doctors' practices and other health care providers to create "accountable care organizations" (ACOs), which are designed to coordinate patient care. Instead of separate fees for each procedure, ACOs will receive lump sum payments to care for patients. The idea is that hospitals and other providers will work harder to provide good care, control costs and keep patients healthy.

But ACOs and other measures in the law could encourage consolidations rather than spur health care competition, some experts say.

Hudson of Wilson Hospital says changes in Washington as well as the regional economy were a key reason he began looking for a partner for his facility. He cites the health care law's lower Medicare rates for hospitals, as well as the expenses involved in adopting new quality controls and developing electronic record-keeping.

What can patients expect?

A system of hospitals has greater bargaining power with insurance companies than a single hospital and can therefore demand higher prices for its services. Robinson of Berkeley examined prices for six major cardiac and orthopedic surgery procedures in hospitals in eight states. His study, published in 2011, found that private insurers paid 13 to 25 percent more for procedures in areas where there was less competition.

In the end, patients wind up paying these increased costs of consolidation — through higher insurance premiums, copayments, deductibles and hospital bills.

And patient care may or may not improve. "There's no clear indication that mergers produce better-quality care," says Thomas L. Greaney, codirector of the Center for Health Law Studies at Saint Louis University.

Of course, hospital systems vary, and Cleveland Clinic's Cosgrove contends big, busy, experienced medical centers that perform a number of procedures can offer better results and a wider range of services. Over the past 12 years the Cleveland Clinic has grown to include another three-hospital system and a two-hospital system, as well as several independent community hospitals.

"We spent millions enhancing these facilities and investing them with our mission, vision and values," he wrote recently. The system spans three states and two foreign countries.

While people often have a sentimental attachment to locally run hospitals, Gary Ahlquist says, "you may have to accept a loss of a locally run institution to be sure you have an institution at all."

For patients, the more important relationship is with their doctors, experts say. "The logo on the front of the hospital might change, but as long as your doctor has privileges there, ownership may not matter much," Scanlan says.

Next page: Who protects patients interests? »

Who protects patient interests?

The Federal Trade Commission (FTC) and U.S. Justice Department police mergers, and many states also require mergers to be approved by their state attorney general.

The FTC recently has "redoubled its efforts to prevent hospital mergers that may leave insufficient options for inpatient hospital services, leading to higher prices for health care," Edith Ramirez, chairwoman of the FTC, told a Senate panel in April. In the last two years, she said, the FTC has blocked mergers in Toledo, Ohio, and Rockford, Ill.

While the courts have tended to permit hospital consolidations, that attitude may be changing. The U.S. Supreme Court ruled in February that a multimillion-dollar merger of the only two hospitals in a Georgia county would result in a virtual monopoly that would substantially reduce competition. Jon Leibowitz, then chairman of the FTC, hailed that as "a big victory for consumers who want to see lower health care costs."

Meanwhile more hospitals are searching for suitors. As the American Hospital Association's Steinberg says, "It's a very hard time to be a hospital."

Marsha Mercer is a freelance journalist in the Washington, D.C., area.

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