Over the past decade, hospital acquisitions have changed the healthcare market, with transactions leading to hospital consolidation and resulting in larger health systems and fewer hospitals.¹ In the $4.3 trillion healthcare industry, over one third is spent annually on hospital care;² therefore, changes in the hospital subsector have significant implications for the rest of the healthcare industry. An August 2023 study conducted by the Public Policy Institute³ of health insurer Elevance Health (formerly known as Anthem) found that when independent hospitals are acquired by health systems, employers, payors, and consumers are exposed to higher pricing without a similar increase in hospital care access or quality of care.⁴ This Health Capital Topics article will review the Elevance study and the impact of acquisitions on independent hospital pricing.

Over the past two decades, the percent of hospital bed capacity that is part of a health system has increased from 58% to 81%.⁵ Similarly, the percentage of markets with no independent hospitals increased from 7% to 25%.⁶ These increases accelerated in the second half of the timeframe, concurrent with escalating hospital prices.⁷

The report authors utilized data from Elevance Health-affiliated health plans in twenty states and compared independent hospitals that remained independent to independent hospitals that merged with a hospital system.⁸ The authors analyzed insurance claims and quality performance measures from 2012 through 2018 showed that after health systems acquired independent hospitals, prices at those hospitals rose while expenses decreased; simultaneously, some quality metrics at those hospitals decreased.

Not surprisingly, hospitals experienced a 6% decrease in operating expenses post-acquisition.⁹ 60% of the decline was attributed to personnel spending reductions, with employment falling 3% due to decreases in support staff.¹⁰ While operating expenses decreased, the average inpatient price rose 5% for commercially-insured patients, and prices increased 5-8% across the major diagnostic categories.¹¹ Specifically, prices in the circulatory system, digestive, respiratory, infectious disease, and labor and delivery categories experienced the highest increases.¹² The health system size did not seem to play a role in the extent of increases in pricing; however, price growth was observed in every one of the formerly-independent facilities.¹³

Perhaps the report’s most concerning findings regard the declining quality of independent hospitals post-acquisition. For example, readmission rates for cardiac care increased by 12% at acquired hospitals and remained high for three years post-acquisition.¹⁴ Additionally, readmission rates for admitted Medicare patients increased 2-3%.¹⁵ Overall, the report did not find increases in any quality category post-acquisition. Further, the report found that access to care at these hospitals declined post-acquisition. For example, a number of maternity wards were closed at independent rural hospitals post acquisition.¹⁶

While hospital acquisition activity slowed during the COVID-19 pandemic, it has rebounded over the last year.¹⁷ The number of independently-operated hospitals are starting to decrease once more, as acute care markets have become more consolidated.¹⁸ Independent hospitals claim that joining large health systems that have more resources will help them negotiate better contracts with commercial insurers.¹⁹ These hospitals also assert that being acquired by larger systems will also reduce the cost of information technology (IT) and supply chain operations, while increasing access to and improving the quality of care.²⁰

Elevance’s report received pushback from the American Hospital Association (AHA).²¹ AHA CEO Rick Pollack stated that the Elevance analysis drew “absurd conclusions about the impact of healthcare systems on access to care, cost and quality.”²² Pollack also argued that “of greatest irony is that while the national health plan behemoth, which dominates many insurer markets, is pointing fingers at the actual healthcare providers serving patients, it is pocketing record profits.”²³ Dr. Richard Stefanacci, a physician at the Jefferson College of Population Health, also spoke about the benefit of acquiring independent hospitals, but mentioned how financial savings needed to be used appropriately.²⁴ Dr. Stefanacci stated that “there’s an opportunity to capitalize on the additional resources gained through these mergers by directing them towards enhancing the value of healthcare delivery.”²⁵