As a Midwestern state's hospitals continue to merge, some experts worry about higher prices, quality of care

COLUMBUS, Ohio – If you need to go to the hospital in Ohio these days, your choices are dominated by a handful of multibillion-dollar medical systems.

The state's seven largest medical systems run a combined 58 community hospitals – more than 40% of the total – American Hospital Association statistics for 2019 show. Add in a variety of other medical facilities and doctors offices, and these seven systems occupy nearly 1,100 locations across the state, according to an analysis by The Columbus Dispatch, part of the Paste BN Network.

Leaders of these systems say health care consolidation means better, more cost-effective care and improved access to specialists for patients of once-independent hospitals.

But numerous independent studies over the past decade found that two things typically happen under a consolidated system: Patients pay more, and the care typically doesn't improve.

"Simply put, due to consolidation we are paying more for our hospital care but there is no evidence that we are getting more in return," said Leemore Dafny, a professor of business administration at Harvard Business School during testimony before the House Judiciary Committee in April.

"Let me be clear: The bad guys in health care are not the hospitals or doctors or even insurers. The bad guy is a lack of competition, driven by consolidation."

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Consolidations concern some experts

Ohio is not exempt from the negative impacts of health care consolidation, said Martin Gaynor, a professor at Pittsburgh's Carnegie Mellon University who has studied the issue for years.

"We now have ... I'd say at least dozens of research studies that have been published in scientific peer-reviewed journals. And we find the same thing over and over and over again. So I would say all the evidence shows that these mergers lead to higher prices," he said.

Gaynor acknowledged that price increases don't happen in every instance of consolidation, and some mergers have benefits. The U.S. has recorded about 1,600 hospital mergers in the past two decades. 

But the bottom line of an analysis he performed with Yale University professor of public health and economics Zack Cooper: "There is clear evidence that hospital consolidation in the U.S. has raised prices, that hospital concentration can reduce clinical quality."

The Health Care Cost Institute, which conducted parallel studies in 2013 and 2017, found that "metros where hospital markets became increasingly concentrated also tended to see larger increases in their inpatient prices (and vice-versa)." However, researchers also cautioned: "our analysis does not necessarily show that increases in concentration caused increases in prices."

Research shows that 70% to 90% of U.S. hospital markets already are "highly concentrated" under standards set by the Federal Trade Commission.

And while consolidation and multibillion-dollar hospital expansions have taken place in Ohio, the overall health of the state's population ranked 43rd in the country on the 2021 "health value dashboard" from the Columbus-based Health Policy Institute of Ohio.

That ranking means "Ohioans are living less healthy lives and spending more on health care than the residents of most other states," the nonprofit's study concluded.

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Hospital executives say the benefits of increasing consolidation include better-coordinated care, easy access to specialists, increased bargaining power with health insurers, and rescuing ailing hospitals in underserved areas.

"Mergers and acquisitions have saved some health systems and hospitals from closure, easing financial pressure. Acquired hospitals often can expand their offerings and benefit from capital investment to develop new enhancements," said John Palmer, director of media and public relations for the Ohio Hospital Association, which represents 245 hospitals and 15 medical systems.

Despite the wave of consolidations, Palmer said the association's analysis of 2017 hospital Medicare cost reports shows that many Ohio hospitals were economically challenged well before COVID hit: 68 had less than a 2% operating margin and 52 more were at or below zero.

A study published in September on JAMA Network Open – a monthly open access medical journal published by the American Medical Association – concluded: "Mergers may enable rural hospitals to improve quality of care through access to needed financial, clinical, and technological resources, which is important to enhancing rural health and reducing urban-rural disparities in quality."

Spending showing little sign of slowing down

U.S. health care spending jumped to $4.1 trillion in 2020 from the previous year, or about $12,443 per person, says the Centers for Medicare and Medicaid Services. That's nearly 20% of all goods and services produced in the United States.

Hospital costs rose 6.4%, to $1.3 trillion, easily making up the biggest share of health care spending, at 32%, according to the CMS.

Gallup polling in 2020 showed 69% of Americans are dissatisfied with health care prices, and more than one in four have put off medical treatment because of its cost.

In Ohio, the seven largest medical systems – which run 40% of the state's hospitals –took in more than $39 billion in revenue two years ago, and together held more than $55 billion in assets. All of their top executives were paid more than $2.5 million (except for one who was hired at mid-year); an additional 97 employees made more than $1 million annually.

The pandemic has not abated the mergers and acquisitions in the state.

Recent activity documented by the Ohio Hospital Association shows a handful of medical centers were absorbed by medical systems such as Cleveland Clinic and University Hospitals within the last year.

Expansions are continuing, too. The Cleveland Clinic has set aside $1.3 billion for building projects this year alone. It broke ground in September for an $80 million hospital about 20 miles northeast of Cleveland. University Hospitals plans to complete a $235 million expansion of its Ahuja Medical Center in suburban Cleveland by 2023.

Ohio State University's Wexner Medical Center is putting up a $1.8 billion inpatient facility on campus, just opened a major outpatient location in New Albany and is finishing another in Dublin.

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Some experts say that with extensive federal funding pouring into many medical systems the pandemic could increase the pace of consolidation.

Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, told The New York Times that the outpouring of federal money to large hospitals will fuel mergers and acquisitions: “The big, well-resourced hospitals had, frankly, a banner year, and they are now in a position to swallow up these smaller, more-vulnerable groups.”

Despite the pandemic, Cleveland Clinic recorded the strongest financial performance and highest clinical activity in its history, said CEO and President Dr. Tom Mihaljevic. The clinic's $764 million in operating income represented a 6% increase over the previous year.

A 2022 KPMG survey of more than 300 health care and life science executives showed that 70% of respondents said they expect to increase their merger and acquisition activity in 2022 over 2021, which was considered a "strong year" for such transactions. More than half of private equity investors forecast plans for at least 10% more deals than last year.

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Loren Anthes sees problems with the high number of new hospital-related facilities across Ohio, even if people like having them close.

"I don't think we need lots of trauma centers. I don't think we need lots of heart hospitals. I don't think we need lots of places that do complex things. ... We don't need a proliferation of the expensive stuff. And that's, unfortunately, what we tend to see," said Anthes, senior fellow at the Center for Community Solutions based in Cleveland, and a lecturer at Ohio University’s Heritage College of Osteopathic Medicine.

"Part of the reason health care (is) so expensive is because we enable the most-expensive thing to exist, and we don't try to constrain them in any way."

Ohio especially saw a free-for-all of hospital expansion because it didn't require hospitals to obtain a license or show a "certificate of need" showing the purpose or need for a new facility or major purchase, Anthes said. (A new requirement approved last year after numerous deaths in the Mt. Carmel health system mandates licenses by September 2024.)

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Medical system leaders say combining hospital resources helps patients

The acquisition of Akron General Hospital in 2015 serves as the poster child that Cleveland Clinic uses to tout the benefits of hospital consolidation.

When the Clinic bought Akron General, the century-old facility had a "D" safety rating with the Leapfrog Group, a nonprofit founded in 2000 by large employers and other health insurance purchasers. But since the fall of 2018 it has received all A's and B's.

It is also now the No. 1 hospital in the Akron market and No. 7 in Ohio, says US News & World Report, and ranked "high performing" for seven specialties and nine conditions and procedures. Akron General's CEO, Dr. Tim Stover, said in 2016 that the cash infusion from the merger kept it from going under.

The Clinic, which has facilities in Florida, Las Vegas, Toronto and Abu Dhabi, receives more than $11 billion a year in revenue, the highest of any Ohio medical system.

"We grow and expand so that we can touch more patients' lives. Our growth benefits patients because we're providing care that's more accessible to them, closer to home," said Kate McLain, the Clinic's director of corporate communications.

"Health care is competitive. Other systems are looking to grow too. Expanding our footprint helps keeps Cleveland Clinic sustainable so we can reinvest in our mission and remain a leading health care system."

Colin Yoder, director of media and public relations for OhioHealth, said the Columbus-area's largest medical system isn't buying the conclusions of studies showing bleak results from consolidation.

"We disagree with the characterization that joining a larger health system has a negative impact on quality or cost. Insurance premium growth outpaces hospital charge growth significantly," he said.

"When we bring a new hospital into our system, we are working not only to maintain their quality of care but also to improve it. We work with hospitals to expand their breadth of services or add higher acuity services so patients can stay in the community and don’t have to travel to larger city hospitals for treatment when possible."

He said when community hospitals become part of OhioHealth, which has more than $1.2 billion in assets, they get economies of scale from being part of a large health system as well as relief from back office administrative functions. 

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Gaynor, the Carnegie Mellon professor who has testified numerous times before Congress, remains unconvinced.

"After decades of consolidation, what do we have to show for it? Higher prices. Quality is no better and maybe even worse ...

"So you know if it's somehow going to improve health care for Americans, when is it going to happen? It's been going on for some 30-odd years and it hasn't happened yet."

Although President Joe Biden issued an executive order in July to crack down on hospital consolidation, the public often doesn't see the direct impact on their pocketbooks like they can from, say, rising gasoline prices, Gaynor said. 

"What happens when private insurers pay out more to the local hospitals? Well, they raise their premiums," he said. "Keep following the breadcrumb trail. The insurers just pass that right along to employers. And that just ends up coming out of workers' wallets."

Research for this story was funded in part by a grant from the nonprofit National Institute for Health Care Management, which played no role in the story's content.

Follow reporter Darrel Rowland on Twitter: @darreldrowland

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