Feds release first-of-its-kind data on healthcare consolidation

The Health and Human Services Department released its first quarterly tranche of hospital and nursing home merger and acquisition transaction data, which marks a major step forward in the government's effort to track the impact of consolidation across the industry, policy experts said.

Hospitals with the lowest profit margins were sold more than twice as often as those with the highest profit margins, according to the analysis of 347 hospital transactions from 2016 to 2021. Long-term care hospitals changed ownership at substantially higher rates than other hospitals and more hospital transactions occurred in the South, where many for-profit chains are based.

The analysis, which is meant to serve as a sample of potential data threads to pull, confirms well-reported trends in hospital M&A. The findings were limited by self-reported data via the Provider Enrollment, Chain and Ownership System and a lack of information on the parent companies. It underscored the need for more comprehensive mandated reporting at both the state and federal level to better illustrate the buyer and parent companies, economists said.

But researchers can compare this dataset to others to glean how healthcare consolidation has impacted access, quality and costs.

"There's a lot of change of ownership in the hospital sector, and there has been no centrally updated database on this. It will be an important source of information and a great resource," said Martin Gaynor, a Carnegie Mellon University health economist. "There is a lot of potential here, but it is very important to get it right."

The report should give researchers and policymakers ideas of what to explore and how to shape the discussions around competition, said Dr. Benjamin Sommers, co-author of the research and the deputy assistant secretary for health policy at HHS' Assistant Secretary for Planning and Evaluation. Transparency is a key feature of any functioning market, and the data is part of President Joe Biden's efforts to lower healthcare costs and improve quality by better tracking consolidation, he said.

"This is the tip of the iceberg," Sommers said. "But this analysis is pretty notable and has some policy implications. We're seeing the most transactions among medium-to-larger hospitals and ones losing money."

Bigger health systems can help financially struggling hospitals stave off closure or service reductions. But hospital mergers in concentrated markets tend to increase prices and stifle quality improvements, research shows.

As for nursing homes, nearly two-thirds that were involved in a transaction over the six-year period studied were purchased by a single owner, according to the HHS report.

"It doesn't surprise me that single operators were involved in 63% of the nursing home acquisitions," said Rick Kes, healthcare senior industry analyst for RSM. "It is really hard to run a small operation of skilled-nursing facilities. You need a lot of scale."

Many of those owners have been private equity firms, other research shows.

Medicare patients were 10% more likely to die at private equity-owned nursing homes in the first 90 days due to lower staffing levels and higher use of antipsychotic drugs, according to a non-peer-reviewed paper published last year in the National Bureau of Economic Research.

That is, in part, why federal regulators are revamping their merger guidelines to bolster oversight, limit anticompetitive consolidation and better measure the effects related to access, quality and costs.

"We can't tell from this data whether all these transactions led to fewer, bigger entities. But it is a start. The lack of standardized reporting is just mind-boggling," said Glenn Melnick, a health economist at the University of Southern California. "On the optimistic side, federal agencies are starting to pay attention to the issue of competition, which is good news. If the feds have the legal authority to demand more reporting from providers, they should do it now."

HHS' quarterly data reporting is a good first step, policy experts said. Researchers can use HHS data to trace ownership changes rather than cobbling together different datasets from Medicare cost reports, the American Hospital Association and third-party data analysis firms, said Cory Capps, a health economist and partner at Bates White Economic Consulting.

"The new HHS dataset appears to make this significantly quicker and simpler and so may, at least at the margin, foster additional research on the extent and effects of consolidation in the hospital and nursing home sectors," he said.