A new government-funded study concludes that hospital alliances may end up increasing healthcare costs instead of reducing them, raising questions about the benefits of strategic partnerships to patients and payers.
Consolidating hospitals often argue that partnering with other hospitals will generate economic efficiencies and that those savings will be passed along to consumers.
Researchers at Virginia Commonwealth University's Williamson Institute for Health Studies reviewed financial records at almost 2,500 urban hospitals and found no evidence that forming alliances has led to lower operating expenses or lower patient costs.
The results of the two-year study, which was funded by a grant from HHS' Agency for Health Care Policy and Research, concludes that consumers pay an average of $140 more per stay at an alliance hospital than at an independent facility.
"Hospital alliances may have been designed to keep competition out and prices high," said Jan Clement, associate professor of health administration at VCU and one of the study's authors. "They're touted as a way to streamline overhead and reduce excess numbers of beds and services. We found that these partnerships are not saving money, at least not yet."
By the end of 1995, about 55% of all urban hospitals had become part of some form of local hospital combination, according to the study. The study defines an alliance as two or more hospitals that have come together through a merger, acquisition, joint venture or some other affiliation agreement. The majority of the alliances studied existed during 1995.
The VCU researchers reviewed the financial data of urban hospitals in more than 300 metropolitan areas covering the period from October 1994 to September 1995. They looked at cash flow per bed, net patient revenues per discharge, and operating expenses per discharge.
The study, published in the November/December issue of Health Affairs, found that the hospitals in alliances reported higher net revenues, while costs per case appeared unaffected.
The researchers said they were not able to determine exactly why this happened. They suggested that costs incurred during alliance formation, such as legal and consulting fees, might reduce savings and lengthen the time needed for the new arrangements to produce operating efficiencies.
"Reorganization of hospitals into local systems should reduce redundancies and offer efficiencies that are usually unavailable to freestanding hospitals in competitive markets," Clement said.