In an unabashed swipe at a Blue Cross Blue Shield Association report released last fall, the American Hospital Association last week unleashed its own study asserting that hospital consolidation has not been a leading cause of rising healthcare costs.
The report, unveiled just before a round of hearings on the healthcare market by the Federal Trade Commission and the U.S. Justice Department. followed the release of another study, by the AHA and the Federation of American Hospitals, asserting that greater volume and higher labor costs are responsible for higher hospital spending (Feb. 24, p.10). Both are part of an industry campaign to counter the perception that hospitals are at fault for rising healthcare costs.
While offering little new data, the new AHA study specifically attacks the Blues study, which stated hospital consolidation had driven up healthcare costs by 18% (Oct. 28, 2002, p. 6).
Hospital lobbyists were incensed by the Blues' conclusion that hospitals, because of consolidation and overuse of new medical technology, were prime drivers of rising healthcare costs. "The Blue Cross report was really the only one out there that came out with such outrageous allegations," said Melinda Hatton, vice president and chief Washington counsel for the AHA. "We did not want to leave it unrebutted," particularly while the FTC and Justice Department continue looking at healthcare antitrust issues.
Others, including the Centers for Medicare and Medicaid Services, also have pointed to hospital consolidation as a major driver of medical inflation. An article published in September on Health Affairs' Web site, healthaffairs.org, also cited hospital consolidation as an important factor in rising healthcare costs. The article, however, said that greater use of hospital services was the main driver of higher healthcare costs.
The AHA report also contradicts previous examinations of hospital mergers, including a 1999 study by researchers at Rand Corp., Santa Monica, Calif., and even an unpublished 1993 study by the AHA's research arm.
The Rand study-which tracked more than a decade of California market data-found that after mergers all those hospitals exploited their larger market share by raising prices, and that price increases grew bigger with time (May 3, 1999, p. 2). The AHA study found that merging hospitals lowered costs and reduced services, but failed to pass the savings along to consumers (Nov. 15, 1993, p. 4).
According to the new AHA report, conducted by Margaret Guerin-Calvert and Economists Inc., a Washington-based consultancy, the pace of hospital consolidation has steadily dropped since 1996, when 235 mergers took place, to 60 last year. In both 2000 and 2001, less than 6% of hospital facilities were involved in a merger transaction, according to the report.
From 1996 through 2001, hospital margins also declined from nearly 7% to slightly more than 4%. With those margins, the report said, hospital consolidation could not have the inflationary effect that the Blues report said it does.
"The (Blues study) provides no sound empirical basis for concluding that hospital consolidation over the period studied has been a factor in overall increases in hospital or healthcare spending," the report authors said.
The Blues stood by its report last week, saying that while it doesn't agree with the AHA, it hopes the differing views will lead to solutions to a medical inflation rate that outpaces general inflation. "The goal of the report is to point out economic realities," said Chris Hamrick, director of media relations for the Blues, which released a health plan cost ratio report last week (See story, p. 15).
Paul Ginsburg, president of the Center for Studying Health System Change and co-author of the Health Affairs report, said the AHA's critique of the Blues methodology may be legitimate. However, he said the report is misleading in its assertion that a slowdown in merger activity has resulted in lower hospital margins. The report says that proves consolidation is not to blame for rising costs.
Merger activity is just one of a long list of variables, including government reimbursement rates, that influence hospital margins, Ginsburg said. "It's not appropriate to look at only one of them," he said.