Analysis of Hospital Acquisitions: Impact on Operating Expenses and Quality of Care

The corporatization of independent hospitals in the United States has been on the rise, with multi-unit hospital systems now owning a significant majority of hospital bed capacity. A recent study conducted by researchers Elena Andreyeva, Atul Gupta, Catherine E. Ishitani, Małgorzata Sylwestrzak, and Benjamin Ukert sheds light on the impact of hospital acquisitions on operating expenses and patient care.

According to the study, after an independent hospital is acquired by a hospital system, hospital operating profit increases significantly, with a rise of about $60,000 per bed per year. The majority of this increase comes from reductions in personnel expenses and capital and financing costs. Inpatient revenues also see a boost of around 6 percent within three years post-acquisition.

Interestingly, the study reveals that when a for-profit hospital system acquires an independent hospital, the subsequent drop in annual operating costs per bed is $94,000 larger compared to acquisitions by nonprofit organizations. This difference highlights the financial implications of the type of acquiring entity on the acquired hospital.

The research also delves into the impact of acquisitions on pricing and service lines. Acquired hospitals with lower prices and bed numbers experienced larger price increases across all service lines. Additionally, when hospitals in the same hospital referral region were acquired by the same system, prices for inpatient treatment of commercially insured patients increased by about 6 percent, indicating a potential rise in market power post-acquisition.

Despite the financial benefits seen in operating cost reductions, the study found no significant improvement in patient satisfaction scores or mortality rates post-acquisition. In fact, there was evidence of a slight decline in quality of care, with an increase in readmission rates for certain patient groups.

Overall, the study provides valuable insights into the financial and operational changes that occur when independent hospitals are acquired by larger hospital systems. It underscores the importance of considering the implications of such acquisitions on both costs and patient outcomes in the healthcare industry.