Hospital mergers have been an increasing trend in the healthcare markets over the past decade, with many proponents of these mergers believing that the overall consolidation of hospital services provides better outcomes for patients at large, and opponents arguing that these mergers only result in increased costs to patients. Over the last couple of years, there has been a slight decrease in the number of hospital mergers, in part due to the whirlwind of changes in society and the economy (i.e., the public health epidemic, increased interest rates and an unstable M&A market), but in large part as a result of drastic changes to the way we receive healthcare services (telehealth and telemedicine, outpatient treatment centers, ambulatory surgery centers, etc.). Although the number of hospital mergers has decreased, the deal size of these transactions has increased exponentially. So what can we expect to see in the future regarding hospital consolidations and what would increased hospital consolidation mean for patients?
A 2014 analysis of hospital M&A trends published by Deloitte LLP predicted a rapid consolidation of health systems over the next ten years, largely due to a desire by hospitals and health systems to increase cost efficiencies by scaling and improving value-based care. Despite the recent uptick in discussions around hospital mergers, they are nothing new. In an interview published by the Association of Healthcare Journalists, Barak Richman, Ph.D., a Duke law professor with a doctorate in business administration, noted that “hospital providers had been consolidating services over the past twenty years.” Although the concept of these mergers is nothing new, the types of mergers occurring are. In the early 2000s, most hospital mergers involved the traditional combination of two or more competing hospitals to form a larger health system, allowing hospitals to provide a wider range of patient services. Though still prevalent, we have seen a shift to “vertical acquisitions” from the traditional model. Vertical acquisitions are when hospitals combine with other healthcare providers, such as outpatient clinics, physician practices, and other facilities in the delivery system to create more efficacy in the delivery of services. One of the strongest catalysts for these vertical acquisitions came in the form of the 2010 Affordable Care Act (the “ACA”), which mandated payment and delivery system reforms and sought to transform of the U.S. healthcare system from one that incentivizes volume of care to one that rewards value-based care. By consolidating services, hospitals hoped to create more efficient access to care, allowing for additional incentives for hospital systems under the ACA. As a result, more and more hospitals and health systems joined larger organizations or added other providers to their network in order to understand the patient’s entire healthcare journey and gain insights on how to prevent costly services and conditions.
The Value of Hospital Mergers
As previewed above, the ACA has encouraged a shift from traditional fee-for-service billing to value-based care. The emphasis on value-based care encouraged hospitals and health systems to streamline patient care through the consolidation of patient care services. While there are many reasons to encourage consolidated health care services, advocates for these hospital mergers believe that its greatest benefit is the reduction in overall costs to patients. A 2021 study conducted for the American Hospital Association (the “AHA Study”) indicated that hospital mergers and acquisitions could reduce healthcare costs. According to the AHA Study, acquired hospitals saw operating expenses per admission drop 2.5% after a deal, resulting in $5.8 million in savings at each acquired hospital. The AHA Study also noted that hospital mergers addressed many of the pitfalls that happen in the course of patient care, including (i) long term commitments of patients, (ii) difficulties aligning incentives to motivate changes in care delivery, (iii) lack of common culture among treatment facilities and (iv) many of the legal and regulatory hurdles in sharing patient clinical and financial data.
While reduced costs for patients is a major factor for encouraging these mergers, supporters of these mergers have argued that they create better access to care for patients as a result of a one stop shop for services, reducing patient remediation in the long run. Others point out the relief to smaller hospitals who are now able to have standardized clinical protocols from human resources to inventory management. Whatever the justification, more and more hospitals and health systems are making the choice to consolidate the scope of services offered.
A 2022 article published by Kaufman Hall noted a “consistent trend in partnership, merger, and acquisition transactions between hospitals and health systems” with a peak in the number of transactions (117) in 2017 and a steady decrease (49) through 2021, in part due to the strain the public health epidemic placed on the M&A markets. According to Kaufman Hall, while the number of transactions decreased, the size of these transactions increased, with about 16.9% of the hospital mergers occurring in 2021 being considered “mega-mergers” with revenues exceeding $500 billion, up nearly double from the prior year. Additionally, after a number of late hospital mergers and acquisitions at the end of the 2022 year, analysts are predicting an uptick in the number of healthcare related transactions through the 2023.
The Pitfalls of Hospital Mergers
While many believe that these hospital mergers are a solution to efficient patient care, just as many opponents worry that these mergers are failing at their mission, shifting the cost for these mergers to the patients and burying more affordable local hospitals. An article by the American Economic Liberties Project notes that despite claims that these mergers save on cost, hospital mergers analyzed between 2007 and 2011 showed a 6% increase in the cost of hospital services. In fact, many believe that the continued consolidation of hospital services only reduces competition in the market, allowing larger hospitals and hospital systems to charge higher prices. These concerns have caused the Federal Trade Commission (the “FTC”) to pay closer attention to healthcare transactions, blocking 15 proposed hospital mergers since 2008. Yet, some still believe that the FTC needs to take more action in breaking up the flurry of hospital mergers that are coming in.
Despite active FTC scrutiny, hospital mergers continue to grow in size and volume. With continued support of value-based care and drastic changes to how patients are receiving health services, the ability of smaller local hospitals to survive independently reduces, and the need for more efficient treatment options increases.
 See Ann D. Phillips, The Origins of The Shift Towards Value-based Care, Intelligent Medical Objects (Mar. 10, 2022), https://www.imohealth.com/ideas/article/the-origins-of-the-shift-toward-value-based-care/
 Jacqueline LaPointe, How Do Hospital Mergers Lower Costs, Drive Quality Improvement?, TechTarget, Revcycle Intelligence Xtelligent Healthcare Media (Jan 26, 2017) https://revcycleintelligence.com/news/how-do-hospital-mergers-lower-costs-drive-quality-improvement.
 Tara Bannow, Patients, Doctors Press FTC to Beef Up Hospital Merger Scrutiny, STAT Reporting from the Frontiers of Health and Medicine (Sept. 18, 2023), https://www.statnews.com/2023/09/18/ftc-hospital-merger/), see also Nadia Dreid, FTC Too Busy to Scrutinize All Hospital Mergers, Sens. Told, Law 360 (May 19, 2021), https://www.law360.com/articles/1385913/ftc-too-busy-to-scrutinize-all-hospital-mergers-sens-told
 Bruce Japsen, Hospital Mergers Just Keep Getting Bigger, Forbes (Jan. 17, 2022), https://www.forbes.com/sites/brucejapsen/2022/01/17/hospital-mergers-just-keep-getting-bigger/?sh=151cc34f75be