Over the past decade there have been more than 100 hospital mergers in the UK. The reasons usually given when hospitals merge is that it saves money and leads to better quality of care. However, there is now growing concern over whether continually re-organising in this way is actually a good thing.
The hospital sector has undergone substantial consolidation over the past few decades. In the US, consolidation is mainly due to several waves of mergers and acquisitions, whereas in Europe it’s mainly due to government policy. In the UK, more than half of the general hospitals merged between 1997 and 2006. In Norway, all public hospitals were merged into four regional health enterprises in 2004. One of these is now Norway’s biggest domestic firm.
Over in the UK, health secretary Jeremy Hunt has come under pressure to halt planned hospital downgrades because of a crisis in A&E, but there is also an increasing call for hospital closures. NHS bodies in at least 15 parts of England are pursuing major reconfiguration plans.
What is the impact on patients of mergers?
Merging services reduces the number of hospitals, which also limits patients’ choice, and increases the distance you need to travel to get to your nearest hospital.
People are worse off, unless the increase in travel is compensated by an improved service. But merging hospitals can lead to lower quality as competition is reduced. Since hospitals receive a fixed price per patient, known as tariffs, they have an incentive to improve quality to attract more patients. This incentive is likely to be stronger when there are competing hospitals nearby than when there’s a monopoly.
In the UK there is a growing concern about the negative effects of hospital mergers on competition. In 2009 the government established the Co-operation and Competition Panel (CCP) Co-operation and Competition Panel (CCP), which was given the authority to approve proposed NHS mergers. In January this year, the Office of Fair Trade referred the merger between the Royal Bournemouth and Christchurch Hospitals and Poole Hospital to the Competition Commission. This is the first merger between NHS foundation trusts to be evaluated by competition authorities.
A drop in quality as competition goes down
In a recent study looking into whether hospital mergers affect the quality of care, we found that merging hospitals have an incentive to reduce quality. By reducing quality, the merging hospitals save costs and increase their revenues and profits. The quality at other hospitals in the same local area is also likely to drop as the competitive pressure in the market is lower after the merger.
Thus, hospital mergers may not only be harmful to patients due to longer travel distance, but also due to lower quality of care. However, we find that cost synergies might turn these results around. If the merging hospitals can treat patients more efficiently after a merger, then quality might increase. What this means is that the authorities should only allow hospital mergers that can show substantial reductions in the costs of treating patients.
What does the empirical evidence tell us?
The results from empirical studies on the effects of hospital mergers are not very promising. Most studies find that hospital mergers tend to increase prices and have no effect on quality. However, this research is mainly based on data from the US, where provision and prices of hospital care to a large extent are set in private markets. Thus, it is not clear the results are valid for NHS-type health care systems.
One exception is a recent study that looked at the effects of the wave of English hospital mergers between 1997 and 2006. Using a number of measures including financial performance, productivity, waiting times and clinical quality, the researchers found little evidence that mergers achieved gains other than a reduction in activity - which might not be a gain depending on how you look at it.
The findings suggest that merging hospitals may not be an appropriate way of dealing with ones that are poorly performing, as was the case with the A&E unit at Lewisham hospital that caused a stir and led to a partial U-turn over the plans.
Larger scope for competition?
In most countries, except for the US, hospital mergers are not subject to anti-trust regulation, which is there to ensure competition is fair and for the benefit of citizens. The evidence suggests that this may not be a good strategy by governments. However, the recent merger evaluation by the Competition Commission shows that the UK is taking this more seriously. Other European countries may be wise in following the same tack.