My colleagues at the International Center for Law & Economics (ICLE) often engage not only in excellent analysis of proposed mergers and acquisitions, but also have been known to offer retrospectives on past mergers. Today, I want to offer a very personal version of this.
A little background: on June 3, 2022, I was diagnosed with acute myeloid leukemia (AML). Due to my lovely wife insisting that being exceedingly tired for more than a week wasn’t normal, we finally went to Sibley Memorial Hospital, where she had just given birth a few months prior to our then two-month-old son. I immediately started receiving care.
It turns out that Sibley Memorial had just been acquired, along with a number of other area hospitals, by The Johns Hopkins Health System Corp. (JHHS). So, I was able to benefit not only from the excellent facilities and nurses of Sibley’s oncology unit, but I also had access to some of the best doctors in the world studying and treating my particular cancer. On top of that, JHHS has done a great job at integrating technology through an app called MyChart, which allows my care to be easily coordinated due to my medical records being digitized and easily accessible to all my various caregivers at vastly different locations.
After spending more than a month in-patient during my first stint of chemotherapy, I would eventually receive a bone-marrow transplant in Baltimore’s The Johns Hopkins Hospital, and then do months of daily outpatient follow-ups there. I would subsequently have weekly—and continue to have monthly—follow-ups with multiple doctors at various facilities around Baltimore, Bethesda, and Washington, for different complications related to graft-versus-host symptoms. But everything is so well-integrated and easy, in stark contrast to the nightmare stories one often hears of health systems’ failures to share information, to digitize, and the need to constantly go over massive amounts of information with each doctor before receiving care.
In other words, I’ve personally experienced the best-case scenario of what hospital mergers can do. As Geoffrey Manne and I wrote back in the day when we considered the efficiencies of hospital mergers:
[M]uch of this consolidation has also arguably led to increased efficiency and greater benefits for consumers. For instance, the integration of healthcare networks leads to increased sharing of health information and better analytics, better care for patients, reduced overhead costs, and other efficiencies. Ultimately these should translate into higher quality care for patients. And to the extent that they do, they should also translate into lower costs for insurers and lower premiums — provided health insurers are not prevented from obtaining sufficient bargaining power to impose pricing discipline on healthcare providers… In fact, it may well be the case that increased consolidation improves overall outcomes in healthcare provider [markets]…
In fact, there is evidence from at least one extremely recent study that suggests my experience is not atypical. The study found, in relevant part, that:
Benchmarking the merger’s effects against the acquirer’s stated aims, we show they achieved some of their goals, harmonizing electronic medical records and sending managers to target hospitals. Post-acquisition managerial processes were similar across the merged chain.
While the study did find ambiguous effects for the hospitals overall—as there was little evidence of gains in health outcomes and a slight loss in overall profitability—this actually suggests that the harms of consolidation may be overstated, even if the benefits are, as well.
This is true even on the health-insurance side, where there has also been considerable consolidation, due to the effects of the Affordable Care Act (including the eventually scrapped Aetna-Humana proposed merger that Geoff and I analyzed). My insurance provider is, in fact, Aetna, and they have covered everything that I have needed, even if there was some debate back and forth at various times between them and the hospital system.
Again, as Geoff and I said in the same blog post:
Congressional Republicans who decry Obamacare should be careful that they do not likewise condemn mergers under what amounts to a “big is bad” theory that is inconsistent with the rigorous law and economics approach that they otherwise generally support. To the extent that the true target is not health insurance industry consolidation, but rather underlying regulatory changes that have encouraged that consolidation, scoring political points by impugning mergers threatens both health insurance consumers in the short run, as well as consumers throughout the economy in the long run (by undermining the well-established economic critiques of a reflexive “big is bad” response).
It is simply not clear that ACA-induced health insurance mergers are likely to be anticompetitive. In fact, because the ACA builds on state regulation of insurance providers, requiring greater transparency and regulatory review of pricing and coverage terms, it seems unlikely that health insurers would be free to engage in anticompetitive price increases or reduced coverage that could harm consumers.
On the contrary, the managerial and transactional efficiencies from the proposed mergers, combined with greater bargaining power against now-larger providers are likely to lead to both better quality care and cost savings passed-on to consumers.
At least in my case, this is exactly what happened, as I easily reached my out-of-pocket max and just plainly benefitted from the health-care system keeping me alive.
As a final note, it is possible that my experience is atypical and I’ve just been blessed by God with an incredible employer that was willing to pay my bills and keep me insured while I went through it all. But it does appear, contra the neo-Brandeisians, that there really can be benefits from consolidation.