Bigger is Better?

You might think bigger is better but it is not necessarily so in hospital mergers and acquisitions. Recent studies regarding patient experience have found patient experience is “moderately worse” after an acquisition and that certainly is never part of the plan before the consolidation.

Conventional logic would suggest that bigger, better funded organizations would be able to offer better patient care.  Better facilities, better diagnostic equipment, better management all cost money and bigger usually means economies of scale.

Data from 250 acquired hospitals, between the years 2009 and 2013 compared patient satisfaction and 30-day mortality and readmission rates as well as the frequency with which heat, pneumonia, and surgery patients received recommended care.  Data from three years before and after the acquisition were studied and then compared to nearby hospitals that had not been involved in a transaction.

Patient satisfaction scores were, on average, worse.  The scores boil down to whether the patient would recommend the hospital to someone else.  The data also showed that acquiring entities that had poor patient
satisfaction scores prior to the acquisition saw the steepest drop at the acquired facility.

These conclusions are backed up by another study published in February 2019.  Rice University Baker
Institute of Public Policy expected improved patient satisfaction but found that scores were worse in 6 of 10 categories post transaction.  One such category is communication with patients.  The researcher’s hypothesis is that consolidation reduces competition and that in turn reduces satisfaction and raises costs to the patient.

It seems logical that clinical care scores would also fall if, for example, the quality of communication with patients falls.  Patients that don’t understand care recommendations or patients that don’t understand their medications or how to adhere to their care plan, will not see the outcomes that are possible.

It’s not just about patient care and patient satisfaction.  There is also a bottom-line justification for M&A.  Economies of scale matter especially for smaller scale M&A.  Justification for mergers gets more difficult the bigger the acquiring organization becomes.  The percentage impact gets smaller and smaller as the acquirer grows in size.

Here is a case in point – two Texas health systems,  Baylor Scott & White, and Memorial Hermann Health System sought to merge, forming a 68-hospital system. The systems have abandoned the plan. Jim Hinton,
Baylor Scott & White’s chief executive, told the Wall Street Journal that, “the end, the more important end, is to improve care.”  That’s the best reason for doing, or not doing, a consolidation.