Big Med's Spread.

Policy Points Hospital executives posit a number of rationales for system mergers which lack any basis in academic evidence. Decades of academic research question whether system combinations confer public benefits. Antitrust authorities need to continue to closely scrutinize these transactions. Recently, mergers of hospital systems that span different geographic markets are on the rise. Economists have alerted policymakers about the potential impacts such cross-market mergers may have on hospital prices. We suggest there are other reasons for concern that scholars have not often confonted. Cross-market mergers may be conducted for purely self-serving reasons of organizational growth that increases executive compensation. Combinations of sellers should have clear advantages to consumers. System executives and their boards should bear the burden of proof. Federal regulators and state attorney generals should be cognizant that rationales for cross-market systems advanced by merging parties are unlikely to be operative or dominant in merger decision making. Policymakers should be careful about passing legislation that encourages hospitals to consolidate. CONTEXT: There is a growing trend of combinations among hospital systems that operate in different geographic markets known as cross-market mergers. Economists have analyzed these broader systems in terms of their anticompetitive behavior and pricing power over insurers. This paper evaluates the benefits advanced by these new hospital systems that speak to a different set of issues not usually studied: increased efficiencies, new capabilities, operating synergies, and addressing health inequities. The paper thus "looks under the hood" of these emerging, cross-market systems to assess what value they might bestow and upon whom. METHODS: The paper examines recently announced cross-market mergers in terms of their supposed benefits, as expressed by the systems' executives as well as by industry consultants. These presumed benefits are then evaluated against existing evidence regarding hospital system outcomes. FINDINGS: Advocates of cross-market hospital mergers cite a host of benefits. Research suggests these benefits are nonexistent. Additional evidence suggests other motives may be at play in the formation of cross-market mergers that have nothing to do with efficiencies, synergies, or community benefits. Instead these mergers may be self-serving efforts by system chief executive officers (CEOs) to boost their compensation. CONCLUSIONS: Cross-market hospital mergers may yield no benefits to the hospitals involved or the communities in which they operate. The boards of hospital systems that engage in these cross-market mergers need to exercise greater diligence over the actions of their CEOs.

Is the system really the solution? Operating costs in hospital systems.

Hospital system formation has recently accelerated. Executives emphasize scale economies that lower operating costs, a claim unsupported in academic research. Do systems achieve lower costs than freestanding facilities, and, if so, which system types? We test hypotheses about the relationship of cost with membership in systems, larger systems, and centralized and local hub-and-spoke systems. We also test whether these relationships have changed over time. Examining 4,000 U.S. hospitals during 1998 to 2010, we find no evidence that system members exhibit lower costs. However, members of smaller systems are lower cost than larger systems, and hospitals in centralized systems are lower cost than everyone else. There is no evidence that the system's spatial configuration is associated with cost, although national system hospitals exhibit higher costs. Finally, these results hold over time. We conclude that while systems in general may not be the solution to lower costs, some types of systems are.

Horizontal and vertical integration of physicians: a tale of two tails.

PURPOSE: Researchers recommend a reorganization of the medical profession into larger groups with a multispecialty mix. We analyze whether there is evidence for the superiority of these models and if this organizational transformation is underway. DESIGN/METHODOLOGY APPROACH: We summarize the evidence on scale and scope economies in physician group practice, and then review the trends in physician group size and specialty mix to conduct survivorship tests of the most efficient models. FINDINGS: The distribution of physician groups exhibits two interesting tails. In the lower tail, a large percentage of physicians continue to practice in small, physician-owned practices. In the upper tail, there is a small but rapidly growing percentage of large groups that have been organized primarily by non-physician owners. RESEARCH LIMITATIONS: While our analysis includes no original data, it does collate all known surveys of physician practice characteristics and group practice formation to provide a consistent picture of physician organization. RESEARCH IMPLICATIONS: Our review suggests that scale and scope economies in physician practice are limited. This may explain why most physicians have retained their small practices. PRACTICAL IMPLICATIONS: Larger, multispecialty groups have been primarily organized by non-physician owners in vertically integrated arrangements. There is little evidence supporting the efficiencies of such models and some concern they may pose anticompetitive threats. ORIGINALITY/VALUE: This is the first comprehensive review of the scale and scope economies of physician practice in nearly two decades. The research results do not appear to have changed much; nor has much changed in physician practice organization.

The changing configuration of hospital systems: centralization, federalization, or fragmentation?

PURPOSE: Research on hospital system organization is dated and cross-sectional. We analyze trends in system structure during 2000-2010 to ascertain whether they have become more centralized or decentralized. DESIGN/METHODOLOGY/APPROACH: We test hypotheses drawn from organization theory and estimate empirical models to study the structural transitions that systems make between different "clusters" defined by the American Hospital Association. FINDINGS: There is a clear trend toward system fragmentation during most of this period, with a small recent shift to centralization in some systems. Systems decentralize as they increase their members and geographic dispersion. This is particularly true for systems that span multiple states; it is less true for smaller regional systems and local systems that adopt a hub-and-spoke configuration around a teaching hospital. RESEARCH LIMITATIONS: Our time series ends in 2010 just as health care reform was implemented. We also rely on a single measure of system centralization. RESEARCH IMPLICATIONS: Systems that appear to be able to centrally coordinate their services are those that operate in local or regional markets. Larger systems that span several states are likely to decentralize or fragment. PRACTICAL IMPLICATIONS: System fragmentation may thwart policy aims pursued in health care reform. The potential of Accountable Care Organizations rests on their ability to coordinate multiple providers via centralized governance. Hospitals systems are likely to be central players in many ACOs, but may lack the necessary coherence to effectively play this governance role. ORIGINALITY/VALUE: Not all hospital systems act in a systemic manner. Those systems that are centralized (and presumably capable of acting in concerted fashion) are in the minority and have declined in prevalence over most of the past decade.

Hospital-physician collaboration: landscape of economic integration and impact on clinical integration.

CONTEXT: Hospital-physician relationships (HPRs) are an important area of academic research, given their impact on hospitals' financial success. HPRs also are at the center of several federal policy proposals such as gain sharing, bundled payments, and pay-for-performance (P4P). METHODS: This article analyzes the HPRs that focus on the economic integration of hospitals and physicians and the goals that HPRs are designed to achieve. It then reviews the literature on the impact of HPRs on cost, quality, and clinical integration. FINDINGS: The goals of the two parties in HPRs overlap only partly, and their primary aim is not reducing cost or improving quality. The evidence base for the impact of many models of economic integration is either weak or nonexistent, with only a few models of economic integration having robust effects. The relationship between economic and clinical integration also is weak and inconsistent. There are several possible reasons for this weak linkage and many barriers to further integration between hospitals and physicians. CONCLUSIONS: Successful HPRs may require better financial conditions for physicians, internal changes to clinical operations, application of behavioral skills to the management of HPRs, changes in how providers are paid, and systemic changes encompassing several types of integration simultaneously.