Nonprofit hospital executives often tout the benefits of mergers to patients, physicians, and the community, asserting such expansion allows systems to simultaneously improve access, raise quality, and lower costs. 

Yet anyone familiar with Kissick’s iron triangle, which holds that access, quality, and cost can only be improved by compromising at least one of the other two, should be skeptical, and for good reason: Evidence points to many of these benefits being exaggerated. 

LDI Fellows Lawton Robert Burns and Mark Pauly used evidence from decades of economic research to investigate these claims. Skepticism is warranted, they reported recently in Milbank Quarterly, because, beyond claims built on the pillars of the iron triangle, executives are now also claiming advantages “in new areas such as physician alignment, clinical capabilities, innovation, capital access, and even tackling health inequities.”  

The authors also focused on the important new wave of mergers involving systems in different regions. Here are some of the myths they dispel in their new study:   

Claim: Mergers help everyone by keeping costs down.

This is likely false.

After cross-market acquisitions, hospital prices rose by 17% more than hospitals that did not merge, and nearby hospitals also raised prices by 8%. These cost increases were not the result of improvements in quality or expansions in access, the research showed.

Claim: Mergers create jobs while providing patients access to more doctors.

This is likely false.

Mergers link existing providers; they do not add providers. As Burns and Pauly put it, “the addition of hospitals in North Carolina is not going to help your Wisconsin network.” And some job growth, they posited, will come at the expense of other hospitals in the region. 

Claim: Mergers advance equity goals.

This is likely false.

Mergers have proved harmful to underserved populations. Merged systems have a history of “wringing wealth” from these communities, as a recent New York Times investigation put it, using their tax-free status and other benefits while offering poor quality services, or leaving low income areas to serve wealthier ones. What’s more, they found that after being acquired by a system, nonprofit hospitals decreased their spending on subsidized health services compared to unmerged hospitals.

Claim: Newly merged systems are able to create their own insurance plans that rival commercial competitors.

This is likely false.

When systems attempt to offer their own health plans, those ventures often do poorly, because they are at a disadvantage compared to existing insurers with first mover advantage, according to the authors. Hospital-backed health plans have been found to have higher premiums, putting more costs on workers and businesses, and to be unprofitable, harming systems.

Claim: Mergers help physicians collaborate with one another to improve patient care.

This is likely false.

The relationships between physicians likely do not scale. Especially for geographically distant mergers, attempting to link physicians in this way does little more than add administrative burden.

Claim: Mergers help everyone by driving innovation through increased access to intellectual and economic capital.

This is likely partially true.

Larger systems do receive higher credit ratings than individual hospitals, meaning that they can borrow money at lower interest rates, which may allow them to fund innovative approaches more easily. 

However, larger networks have not been found to be more innovative than smaller ones in terms of the research and development they conduct. 

For more from LDI on health care consolidation, see “Hospital Consolidation Continues to Boost Costs, Narrow Access, and Impact Care Quality,” “Who Benefits Most From Health Care Insurers’ Mergers?,” and “Does Collective Bargaining by Physicians Hurt Consumers?”.

Other structural changes are more likely to actually lower hospital costs, like a shift to hub-and-spoke models where one main facility is connected to other satellite locations offering more limited services. 

At the end of the day, there is little evidence that mergers benefit anyone besides hospitals themselves—and their CEOs who, as Burns and Pauly noted, “grow their salaries and executive compensation by growing the size of their systems.”  

Therefore, when weighing the benefits of potential hospital mergers, regulators and policymakers should be aware that their executives’ justifications often are not based in evidence. 

The authors cited former NFL owner Al Davis, who became famous for telling his players “just win, baby.”

For hospital systems, “the mantra may simply be ‘just grow, baby’.” Burns and Pauly say it’s important to keep the following in mind: “Cross-market mergers may be conducted for purely self-serving reasons of organizational growth.”

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The original research, “Big Med’s Spread,” was published on March 29, 2023 in Milbank Quarterly. Authors include Lawton Robert Burns and Mark Pauly.

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