Tags: Biden administration | health care | quality medical care

The Biden Admin Is Wrong to Fret About Healthcare Consolidation

efficient and effective health care

Tuesday, 23 November 2021 09:21 AM EST

Over the past several years, the healthcare industry has gone through several rounds of consolidation that have been met with increasing alarm by regulators in Washington.

While maintaining competition in the marketplace is important, consolidation is only bad as so much as it harms consumers by limiting choices and raising costs. In the case of recent hospital mergers, the opposite is taking effect, yet the Federal Trade Commission (FTC) continues to sound alarm bells. How can there be such a contradiction?

For years now, hospitals, especially those that serve rural and underserved communities, have been under increasing financial strain. As private and public support has become scarcer in recent years, the only solution many of these facilities have found to continue providing access to their patients is to merge with a larger hospital system.

115 Healthcare M&As in 2017

Mergers were happening long before the pandemic, but the financial strain that COVID placed on healthcare facilities has brought the trend into increasing focus. In 2017 for example, healthcare organizations announced 115 merger and acquisition transactions, the highest number in recent history. But in the wake of the pandemic, as lucrative elective surgeries were cancelled and shortages of labor and PPE significantly inflated costs, havoc was wreaked on the balance sheets of these facilities. The need for such financial lifelines became especially acute.

Prior to the pandemic, about a quarter of all hospitals had negative operating margins, but by the beginning of 2021, that number jumped to 50%. In 2020 alone, 21 rural hospitals closed, and since the start of the pandemic, more than three dozen hospitals have entered bankruptcy. Clearly the current status quo, which in some instances has forced patients to drive more than 35 miles to receive medical treatment in the wake of the closure of their local healthcare facility, has not benefitted the consumer. Patients are left with less access to care and reduced choice as to where they can receive their medical care.

By and large, mergers are generally a positive for consumers and markets. That is why the President Reagan, for example, rolled back many of the restrictions that has pre-existed his administration and had proved to be a significant obstacle merger activity.

As technology has made the domestic economy more dynamic and has minimized the barriers to entry that allow dominant market players to be overtaken in just a few years, concerns about reduced competition are becoming less relevant.

Some M&As Decrease Revenue

Recent analysis has borne this out for hospital mergers, as well. A study released by Charles River Associates over the summer found that hospital acquisitions can occur “without an increase in revenue that may signal enhanced market power.” Furthermore, mergers have led to reduced costs and improved patient outcomes. On average revenue per admission declined relative to non-merging hospitals by 3.7 percent, and these same facilities experienced a statistically significant reduction in patient readmission rates.

Unfortunately, the FTC has failed to take much of this into account when weighing hospital mergers. Part of the problem could be that hospital mergers are getting swept up into a broader anti-merger tack that the FTC is leaning towards. It could also be a symptom of the fact that the FTC is using data from as far back as the early 1990s as a basis to determine potential harm to the markets and consumers.

Much has changed in the U.S. economy in the last 30 years, and healthcare is no different. The Internet, for example, was in its infancy and had not yet been adopted for widespread commercial use. As a result, advancements in the medical field such as electronic medical records and telemedicine, were not even something that could even be fathomed. Apply this logic to number of other recent technologies in the medical field and in markets more broadly, and it is not hard to find faults with using such outdated data.

If the FTC and other relevant agencies overseeing hospital mergers are truly concerned about improving the lot of healthcare consumers, one of the best things they can do is get out of the way. Markets are often adept at unilaterally responding to external forces and correcting themselves. In this case, current shifts in the healthcare trends in the industry appear to be doing just that.

Dan Perkins is a registered investment adviser with over 40 years of investments experience investing in all asset classes all over the world

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Over the past several years, the health care industry has gone through several rounds of consolidation that have been met with increasing alarm by regulators in Washington.
Biden administration, health care, quality medical care
Tuesday, 23 November 2021 09:21 AM
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