The Corporatization of Hospitals: The Impact on Health Care Costs and Quality – NIHCM

Report on the Effects of Hospital Corporatization: Implications for Sustainable Development Goals (SDGs)

Introduction

This report summarizes a study conducted by Elena Andreyeva et al., published in the Journal of Political Economy Microeconomics, which investigates the impact of hospital corporatization—defined as the acquisition of independent hospitals by health systems—on pricing, costs, and quality of care. The study analyzes data from over 100 acquisitions and provides insights relevant to policymakers, healthcare leaders, and stakeholders committed to advancing the Sustainable Development Goals (SDGs), particularly SDG 3 (Good Health and Well-being) and SDG 9 (Industry, Innovation, and Infrastructure).

Synopsis of Findings

1. Price Increases: Negotiated inpatient prices for commercially insured patients increased within two to three years post-acquisition, with a 6% average rise. Price increases were more pronounced in acquisitions that increased market concentration or involved hospitals in the same geographic market.
2. Cost Reductions: Total operating expenses per bed declined, primarily due to reductions in capital and personnel costs.
3. Quality of Care: Hospital readmission rates rose following acquisitions, while patient mortality rates and satisfaction scores remained largely unchanged.

Key Insights from Researchers

The research team—Elena Andreyeva, Atul Gupta, Catherine Ishitani, Malgorzata Sylwestrzak, and Benjamin Ukert—provided detailed commentary on the implications of their findings.

Surprising Findings and Their Impact

• Acquisitions of formerly independent hospitals led to significant operating cost reductions driven by staff cuts, including both administrative and clinical personnel.
• System-owned hospitals acquired by other systems did not experience cost savings, indicating limited efficiency gains in such transactions.
• Increased readmission rates were observed only in formerly independent hospitals, suggesting a decline in care quality post-acquisition.

Health Policy Implications and Antitrust Considerations

• Hospital consolidation effects vary depending on the organizational status of the acquired hospital, highlighting the need for nuanced antitrust evaluations.
• Price increases occur regardless of cost savings, especially when acquisitions increase market concentration, supporting the use of market concentration metrics in antitrust enforcement.
• These findings align with SDG 16 (Peace, Justice and Strong Institutions) by emphasizing the importance of regulatory oversight to ensure fair market competition and protect consumer interests.

Mechanisms Behind Price Increases

1. Enhanced negotiation capabilities of acquiring systems due to specialized teams and market intelligence.
2. Increased market power resulting from consolidation.
3. Potential cost savings that may be partially passed on as price reductions, though this effect appears limited.

Workforce Changes and Quality of Care

• Personnel reductions, especially among support staff such as billers, coders, case managers, and technicians, contributed to cost savings.
• These workforce changes correlated with increased hospital readmission rates, indicating potential negative impacts on care coordination and delivery.
• Maintaining adequate staffing aligns with SDG 8 (Decent Work and Economic Growth) by promoting sustainable employment and quality healthcare services.

Impact on Hospital-Insurer-Payer Relationships

• Consolidation increases hospital market power, leading to higher prices for privately insured patients and potentially higher insurance premiums.
• Medicare Advantage populations may become a focus in negotiations, although current evidence shows limited price sensitivity.
• These dynamics affect SDG 3 by influencing healthcare affordability and access.

Rural versus Urban Market Considerations

• Rural hospitals may benefit from access to system resources but face challenges including higher prices, job losses due to staff reductions, and reduced clinical service availability.
• These issues highlight the need to address SDG 10 (Reduced Inequalities) by ensuring equitable healthcare access and economic opportunities in rural areas.

Differences Based on Hospital Ownership Status

• Acquisitions of independent hospitals yield cost savings and increased readmission rates, while acquisitions of system-owned hospitals do not generate cost efficiencies.
• System-to-system acquisitions primarily increase hospital profits through higher prices without operational savings, raising antitrust concerns.

Future Research Directions

• Expanding analysis to outpatient services, which constitute over half of hospital revenue, including imaging and ambulatory surgery.
• Investigating mechanisms behind increased readmission rates post-acquisition to improve quality of care.
• Quantifying the extent to which cost savings are passed through to insurers and consumers.

Conclusion

This study provides critical evidence on the effects of hospital corporatization, emphasizing the importance of regulatory frameworks to balance cost efficiency, market competition, and quality of care. The findings support several Sustainable Development Goals by advocating for improved health system performance, equitable access, decent work conditions, and strong institutional governance.

1. Sustainable Development Goals (SDGs) Addressed or Connected to the Issues Highlighted in the Article

1. SDG 3: Good Health and Well-being
   • The article focuses on hospital corporatization and its effects on healthcare delivery, quality of care, hospital readmission rates, and patient outcomes, directly relating to ensuring healthy lives and promoting well-being.
2. SDG 8: Decent Work and Economic Growth
   • The reduction in hospital personnel and its impact on employment, especially in rural areas, relates to promoting sustained, inclusive, and sustainable economic growth and decent work for all.
3. SDG 10: Reduced Inequalities
   • Concerns about higher prices and reduced access to services in rural areas highlight issues of inequality in healthcare access and affordability.
4. SDG 9: Industry, Innovation, and Infrastructure
   • Hospital consolidation and corporatization involve changes in healthcare infrastructure and operational efficiencies.

2. Specific Targets Under Those SDGs Identified Based on the Article’s Content

1. SDG 3: Good Health and Well-being
   • Target 3.8: Achieve universal health coverage, including financial risk protection and access to quality essential health-care services.
   • Target 3.4: Reduce premature mortality from non-communicable diseases and promote mental health and well-being (implied through quality of care and readmission rates).
   • Target 3.1: Reduce maternal mortality (related to patient mortality and satisfaction scores).
2. SDG 8: Decent Work and Economic Growth
   • Target 8.5: Achieve full and productive employment and decent work for all women and men, including young people and persons with disabilities.
   • Target 8.3: Promote development-oriented policies that support productive activities and decent job creation.
3. SDG 10: Reduced Inequalities
   • Target 10.2: Empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, or economic status.
   • Target 10.3: Ensure equal opportunity and reduce inequalities of outcome.
4. SDG 9: Industry, Innovation, and Infrastructure
   • Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being.

3. Indicators Mentioned or Implied in the Article to Measure Progress Towards the Identified Targets

1. SDG 3 Indicators
   • Indicator 3.8.2: Proportion of population with large household expenditures on health as a share of total household expenditure or income (implied by increased inpatient prices and premiums).
   • Indicator 3.1.2: Maternal mortality ratio (implied by patient mortality rates).
   • Indicator 3.4.1: Mortality rate attributed to cardiovascular disease, cancer, diabetes or chronic respiratory disease (quality of care and readmission rates as proxies).
   • Hospital readmission rates (used in the article as a quality of care measure).
   • Patient satisfaction scores (mentioned as unchanged).
2. SDG 8 Indicators
   • Indicator 8.5.2: Unemployment rate, by sex, age and persons with disabilities (implied by workforce reductions in hospitals).
   • Number of jobs lost or gained in hospital support and clinical staff roles.
3. SDG 10 Indicators
   • Price increases in inpatient care relative to income levels (implied economic inequality in rural vs. urban areas).
   • Access to healthcare services in rural areas (implied by decline in delivery services).
4. SDG 9 Indicators
   • Operational cost savings per bed (efficiency of infrastructure use).
   • Market concentration indices (used as screening tools for antitrust enforcement).

4. Table of SDGs, Targets and Indicators

Source: nihcm.org