A series of policy changes recently adopted by the Federal Trade Commission (FTC) could have vast unintended consequences for America’s struggling rural hospitals.
The shift in policy comes amidst a broader skepticism the FTC is beginning to adopt around mergers. The new policy would in effect give the commission veto power over a company’s future transactions once it attempts an allegedly anticompetitive merger or acquisition. And while no one would fault the FTC for wanting to put a stop to mergers that would raise prices or harm consumers, the fact is recent consolidations in the hospital industry has shown that neither have occurred in this space. In fact, it is quite the opposite. Preventing some of these mergers from occurring could not only limit patient access to healthcare, but it could also cause healthcare prices to continue to rise.
Rural hospitals serve about 60 million Americans, or about one-fifth of the entire U.S. population. Even before the disruptive effects of COVID, these facilities were struggling to keep their doors open with 21% of rural hospitals at risk of closing. Since the start of the pandemic, that trend has only accelerated and in 2020 alone, 21 rural hospitals closed their doorsand more than three dozen entered bankruptcy. The result is underserved communities and hospital “deserts” where patients would be required to travel long distances in order to reach care, sometimes in excess of 35 miles.
In Colorado, where I previously chaired the House Committee on Health and the Environment, I have seen firsthand the struggles these facilities are facing in order to keep their doors open. Every single rural hospital considered high-financial-risk in the Centennial State in 2019 was also deemed essential. The dual stressors of COVID-related staffing shortages and financial shortfalls due to cancelled elective surgeries have found these facilities “stretched to the max” as COVID once again accelerates in Colorado. Clearly, immediate action is needed to help shore up these critical hospitals.
One of the best ways to do this is for the FTC to remove the regulatory hurdles to hospital consolidation. Doing so will allow these rural hospitals to better serve their patients and reduce the costs of providing care. Sometimes it is the only means of preserving this critical access.
Unfortunately, outdated data has been used to justify continued resistance to hospital mergers. Some of the commentaries asserting hospital mergers raise prices are based on information from as far back as the 1990s, when the economics of the healthcare industry were significantly different.
More recent data has found that hospital mergers can enhance patient outcomes while reducing costs. A study from Charles River Associates, for example, has found that “hospital acquisitions are associated with statistically significant decreases in both cost and revenue.” On at least three occasions this same conclusion has been reached. Research from the JAMA network meanwhile finds that mergers cut mortality rates at rural hospitals, challenging the argument that rural hospital consolidation “is likely to result in greater market power and higher prices but poorer quality.”
The reasons are simple. The economies of scale these smaller facilities can tap into by merging with larger hospital systems can reduce costs. By eliminating administrative redundancies operating costs are reduced or shifted towards patient care. The vast capital that larger hospital systems can provide meanwhile, provide rural hospitals an opportunity to invest in upgrading facilities. This improves patient outcomes, and also helps these facilities realize yet more efficiencies which result in additional cost savings.
Hospitals must adapt so they can continue serving their patients and for many of these rural facilities, mergers are the next logical step in that progression. The FTC and other interested parties need to stop relying on outdated and inaccurate information to justify their intransigence on necessary mergers in the healthcare space. It’s high time that regulators in Washington get out of the way and allow rural hospitals to continue their important work of saving lives and preserving communities.
