Merger mania: physicians beware - Health Care Mergers - integrated health services

Physician Executive, March-April, 1998 by Thomas P. Weil, Glenn M. Pearl

What should be worrisome to physicians is that increased consolidation eventually affords the opportunity among those networks, which are able to achieve significant market penetration, to undertake tacit collusion at maximizing prices among major providers and insurers. (28) Thus, physician and hospital mergers which enhance efficiency and effectiveness in the short-run can potentially fail to yield expected savings to the community in the long-run, unless there is intensive bargaining among providers and insurers on prices and quality standards.

Of concern is simply that a concentration of hospitals, physician practices, and insurers will have the ironic consequence that market-driven forces currently underway may no longer continue to serve the public interest by requiring providers to compete. In the near future, eliminating most weak competitors could easily culminate in a single or few networks dominating each region's health services by segmenting the market (geographically and clinically) into virtual monopolies (i.e., oligopolies). Giantsized providers would then be in a position to exercise regional dominance to further their own self-interest, rather than applying their fiscal and managerial resources to such social objectives as expanding access for low-income populations or providing more and better care at little or no additional cost.

These oligopolistic concentrations in the health field present serious problems. The dissatisfaction of some business coalitions or similar groups with the performance of local HMOs have led them to contract with providers directly. However, what happens when there are few survivors" left and the employers are no longer able to play integrated health systems against each other? At that juncture, do state governmental officials have the responsibility to step in and provide the necessary additional regulations to protect the public? Or, does state government threaten the providers that a health services commission as a public utility should be established soon? In this connection, it is not far-fetched to project that the continuing expansion of oligopolies and managed care with capitated payment could serve as a back door to further regulatory controls and global budgetary approaches (e.g., state capitated Medicaid plans) for the health field. (29)

Conclusion

Despite the conceptual promise that multi-hospital systems have been perceived to be superior in allocating health resources and in promoting operational efficiencies, research to date has not demonstrated that organizing hospitals and medical groups into systems (often formed by consummating several mergers) resulted in enhanced access, lower health care costs, or improved quality of care. (30-31) Therefore, it is of no surprise that a summary of the empirical studies of hospital mergers, which have been a topic of less intensive examination than multi-hospital systems, illustrate either modest or limited conclusions. However, it could well be that insufficient time (in years) has elapsed where it is possible to allow local health executives to implement the changes that would demonstrate the true efficacy of consolidating various health organizations.