Moody's Reports Hospital Mergers On The Rise, Could Lead To Higher Prices

Good For Business, Less So For Everyone Else

As if hospital costs weren't high enough, prices may be about to ratchet up further in some locales.

More U.S. hospitals are joining forces to weather escalating health care costs, difficult financial times, declining payments from insurance companies and government programs. Hospitals are also anticipating the impact of national health care reform.

The uptick in mergers is good for business, according to a report issued by an influential credit-rating organization today. But it could limit competition and increase prices for patients.

Consumers are already facing rising health-care costs. The average amount employees paid for health insurance through work rose 9.3 percent to $2,764 in 2012, a 40 percent increase from 2007, according to a survey released Thursday by the consulting firm Towers Watson and the trade organization National Business Group on Health.

To be sure, depending on the make-up of the local market, a merger could lower health care costs by making hospitals more efficient or by giving them leverage against the one big insurance company that dominates the market.

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Moody's Investors Service says nonprofit hospitals that streamline their operations and extend their reach can better adapt to the changing health care marketplace. Doing so can boost confidence in a hospital system's financial stability, leading to higher bond ratings and easier access to financing from lenders, Moody's says.

"Size and scale are now an important means to gaining greater efficiencies and driving waste and costs out of the delivery system," Moody's Associate Managing Director Lisa Goldstein said in a news release.

Nonprofit hospitals across the country already are making a flurry of deals, and not just with each other. In addition to big mergers of nonprofit hospitals in cities like New York and Chicago, some health systems are looking to forge alliances with large physician practices and even health insurance companies, the New York Times reports Thursday. Private equity investors also are taking an interest, according to the newspaper.

Federal regulators are wary of too much consolidation among hospitals. When a local market is dominated by a single hospital company, competitive forces diminish and prices for medical services can go up. The Federal Trade Commission has made hospital consolidation a priority and has contested proposed mergers in Ohio and Georgia.

The deal-making mirrors a trend from the late 1990s when hospital chains sought mergers after a federal deficit-reduction law slashed Medicare payments to the facilities, Bloomberg News reports. The health reform law enacted two years ago cut Medicare rates for hospitals by $155 billion through 2019. Other elements of the law encourage hospitals, physicians, insurance companies, and other health care entities to collaborate in reducing medical costs, which also has spurred interest in mergers.

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