American Hospitals Must Consolidate Or Die

Buckley Carlson Political Strategist
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Want to know the surest way to kill an enterprise? Force it to endure ever-increasing expenses while at the same time restrict its ability to raise revenue. Want to hasten that death? Accelerate the decreasing revenue while guaranteeing the increased expense. It’s simple math, but you may be surprised to know that America’s hospitals are currently on the losing side of this equation. Equally upsetting, the federal government, which on the one hand is largely responsible for the new calculus in American healthcare, is, on the other, also the largest obstacle to the industry’s natural remedy for it.

As Americans, we expect a lot of our hospitals. We always have. It’s where we start life, and often, where we end it. But increasingly, it’s also where we go for our regularly scheduled and life-sustaining medical needs, and not just during emergencies. American hospitals remain the epicenter – the umbilical cord, even – of the nation’s healthcare system.

As the U.S. healthcare system has expanded – a response to several factors, but particularly the aging of a significant portion of the populace, society’s growing determination that healthcare is a “right” rather than merely a precious commodity, and the onerous mandates of ObamaCare – hospitals have been forced to ask the existential question: how to provide quality, comprehensive care to more people for less money, while still operating efficiently and cost-effectively?

It is a question that should make all Americans nervous, especially against the backdrop of hospital financing, which has seen a precipitous decline in both public and private contributions these last few years.

With higher costs, increased demand, and fewer funds, independent hospitals are too often facing the tough choice of whether to focus on providing patients with quality care and emergency services, or making investments in advanced medical technology, electronic record systems, expanded specialty care, and improved medical facilities.

Unfortunately, many hospitals don’t even have the luxury of making that choice, opting instead to simply shutter their facilities, as a whopping 421 American hospitals did between 2000-2010, according to the Medicare Payment Advisory Commission (MedPac).

Much better, of course, would be an “all of the above” approach, with a focus on preserving access to care and emergency services, while also providing integrated and coordinated treatment, and even revitalizing poorly performing or inefficient hospitals.

No fantasy, this is instead the reality newly realized through hospital mergers and acquisitions, where strength really is found in the numbers.

According to the Center for Healthcare Economics and Policy, in just the years 2007-2011, there were approximately 333 hospital mergers and acquisitions across the country, allowing communities to satisfy their public safety commitments, while also tapping into essential capital for necessary improvements.

These networks of hospital systems have managed to apply the brakes to out-of-control cost increases, reduce the costs to consumers in some cases, preserving for them (us, the consumer) the benefits of market competition. The facts are encouraging, and can be found in detail in the Center’s study last year, found here.

These are just some of the beautiful hallmarks of the American free market system, the ability to be flexible, to adapt to market forces (even, or especially, if some of those forces are exerted by the heavy hand of our own government), and to determine what, if any, changes can be made to sustain business in the face of seemingly insurmountable obstacles.

American hospitals have done it, and well. They should be applauded for their resourcefulness. Instead, the Federal Trade Commission (FTC) has challenged some of these mergers from an anti-trust perspective.

Admittedly, only 4 percent of the mergers of the past 5 years have been challenged by the FTC in court, but a case decided just this past month, FTC v. St. Luke’s Health System in Salt Lake City, Utah, where the FTC succeeded in rolling back a hospital/physician group merger, is predicted to have a chilling effect on future consolidations.

Here the injustice extends well beyond just the fact that the industry is undergoing natural market evolution as a result of the unnatural interference of the federal government. There are no established “victims” of these mergers, its assertions of price increases are dependent on outdated studies, and its old data reflects much different market conditions than currently exist today.

There is no accounting for bad judgment by the federal government – again, these claims are buttressed in the report cited above – but it is especially dispiriting that the FTC succeeded here, even despite the presiding judge’s assertion that the consolidation would “improve the delivery of healthcare in Treasure Valley.” So much for the “Public Interest.”

There are seismic forces, many of them wielded by the Federal government, arrayed against the U.S. healthcare system.  Despite these, American hospitals have managed to find salvation in mergers and acquisitions, the only way that they can manage to preserve patient access, affordability, and quality, while ensuring a sustainable business model.  The FTC should not be the impediment to American hospitals’ future viability.