The rise of mega-hospitals
Hospital systems are consolidating. But studies show meager benefits for patients.
The following article appeared in the April 22, 2024, edition of The Charlotte Ledger, an e-newsletter with smart and original local news for Charlotte. We offer free and paid subscription plans. More info here.
As health care systems get bigger, can a mid-size regional hospital system like Novant survive? Why hospitals are growing — and what it means for patients
Novant Health has been buying hospitals and expanding, part of a trend toward health care consolidation. Rival Atrium Health combined with Advocate Aurora in 2022. Executives say mergers help cut costs, but studies tend to show meager advantages for patients.
By Michelle Crouch
Co-published with N.C. Health News
When it comes to growth, it seems like hospitals can’t get enough of it.
Across the country, a tidal wave of hospital mergers and acquisitions in recent years has created multi-billion-dollar hospital giants that serve large swaths of the population. For example, just in North Carolina:
Atrium Health’s massive combination with Advocate Aurora in 2022 formed the country’s third-largest public health care system. The system’s $28B footprint now stretches south to Georgia and across the country to Illinois and Wisconsin.
HCA Healthcare’s controversial 2019 purchase of Mission Health in Asheville brought the nation’s largest for-profit hospital system into the state. With $65B in revenue and 186 hospitals in 20 states and the United Kingdom, HCA is a health care juggernaut.
Novant Health is smaller, but it, too, is focused on expansion: In the past year, it opened a new hospital in Ballantyne, purchased a hospital in Pender County, N.C., and three coastal South Carolina hospitals and inked a $320M deal to acquire two Lake Norman area hospitals.
In all, U.S. health systems announced more than 428 deals between 2018 and 2023. Some experts estimate that as much as 80% of the nation’s hospital markets are “highly consolidated.”
Even so, experts say more consolidation is on the way, as hospitals continue to look for ways to cut costs and boost revenue.
What does that mean for patients? Despite hospital promises about benefits, most research shows mergers and acquisitions drive up prices and do little to improve the quality of care.
It's also unclear in an era of mega-systems where that leaves Novant, Charlotte’s No. 2 hospital system with $8.3B in revenues.
The debt Novant took on to buy the South Carolina hospitals for $2.4B prompted two credit rating agencies to downgrade some of its bonds. And the Federal Trade Commission filed an antitrust suit earlier this year to block its purchase of the Lake Norman hospitals.
Why are hospitals supersizing?
Hospitals view growth as their best bet to cope with rapidly rising health care costs, lower payments from insurers and patients who increasingly demand the latest and most expensive health care technologies, industry experts said.
The larger a hospital’s footprint, the more bargaining power it has when it negotiates prices with health insurance companies, said Mark Hall, a professor of law and public health at Wake Forest University.
Hospitals also cite economies of scale and operational efficiencies they say will enhance patient care, Hall said.
Ken Haynes, Advocate Health’s southeast region president, told the Atrium board in December that the combined system achieved more than $180M in savings from the combination in 2023 — more than triple what it had hoped to save. Haynes said the system aimed to achieve another $363M in savings in 2024 by consolidating workstreams, leveraging contract savings and improving labor efficiency.
“We know that by coming together, we are stronger and better able to weather the storms that the entire health care sector is facing,” Haynes said.
A merger can also be what saves a small, rural hospital from closing, said Steve Lawler, CEO of the North Carolina Healthcare Association, which represents hospitals.
“There’s this idea that when there is all this consolidation, that there is some king or empire-maker in the back room, when (hospitals) are just really trying to figure out how to deliver better service and better care, and how to be relevant long-term,” Lawler said.
A study by Kaufman Hall, a health care consulting firm, found that health care mergers and acquisitions increased significantly in 2023, and more than a third of transactions cited financial distress as a driver for the deal.
The health care industry isn’t the first to go through a wave of massive consolidation.
Long-time Charlotte residents no doubt remember the flood of mergers and acquisitions in the financial services industry in the 1980s and 1990s, when Charlotte-based NationsBank was on a buying spree and later merged to become global giant Bank of America. There was another series of mergers during the financial crisis of 2008, when Wachovia was swallowed by Wells Fargo. The airline, tech and telecom industries went through similar consolidations.
“With any capital-intensive business, the more you consolidate, the more you improve your operating margin,” said Matthew Hanis, a Charlotte-based consultant and expert in the business of health care.
Studies: As hospitals grow, prices rise
Growth may help hospitals save money, but it’s far from clear that patients benefit from those cost savings.
A substantial body of research has found that hospital mergers lead to higher prices for patients, with increases ranging from 6% to 30% in concentrated markets. Even mergers between hospitals not close to each other have been shown to raise prices.
Studies examining whether mergers and hospital consolidation hurt patient care have had mixed results. A comprehensive look at the issue, published in The New England Journal of Medicine, found that mergers were “associated with modestly worse patient experiences” but did not increase death or readmission rates.
However, news headlines following two controversial purchases in North Carolina have not been positive:
In Wilmington, not long after Novant Health took over New Hanover Medical Center, patient complaints prompted a state inspection that found dire nursing shortages and emergency room wait times that resulted in an unsafe environment for ER patients, according to WECT.com. (Novant said it has hired nurses and made other changes to rectify the problems.)
And in Asheville, after HCA Healthcare purchased Mission Health, physicians and nurses accused the for-profit health system of delays and lapses in care that harmed patients and resulted in patient deaths, according to Asheville Watchdog. In February, federal authorities placed Mission in immediate jeopardy, the most severe sanction a hospital can face. (HCA said it is addressing concerns.)
Where does that leave Novant?
As hospital consolidation continues, Hanis said, smaller hospitals are either going to be swept up by a larger system — or have to find a way to grow larger themselves.
“If you’re $5B (in revenues) or under, you’re either already merged, something is keeping you safe or nobody wants you,” Hanis said.
Novant’s $8.3B in revenues should help keep it from being a target, Hanis said.
Strong leadership, high profits and geographic isolation from competitors can also help protect a hospital or health care system from acquisition, he said.
Lawler, of the North Carolina Health Care Association, dismissed the idea that Novant executives are worried about getting acquired but said they may be talking to other health care systems about how to work together. He praised Novant’s strategy of targeting medical centers and physician practices in Carolina coastal areas for acquisition.
Hanis said he wouldn’t be surprised if Novant was eyeing another mid-size system for a merger, such as ECU Health in eastern North Carolina or Prisma Health, a $6B system based in Greenville, S.C.
Novant did not directly respond to questions about its expansion plans, but it sent a statement that said, in part, that it is “always open to new opportunities, including mergers and acquisitions.” It went on to say:
We recognize there will always be a need for new clinic and hospital locations, but our approach to creating a healthier future blends in-person and virtual care with novel partnerships to extend our expertise beyond the walls of our facilities. Everything we do at Novant Health starts with the patient and is built around community health needs.
More pushback on hospital monopolies?
Recently, the Federal Trade Commission has taken a more active role against health care mergers and the harms they can cause, said Barak Richman, a professor of law and business administration at Duke University.
One of its first tests: The antitrust suit against Novant’s $320M acquisition of Lake Norman Regional Medical Center in Mooresville and Davis Regional Medical Center in Statesville.
In its complaint, the FTC said the deal would grant Novant control of nearly 65% of the market in the eastern Lake Norman area, likely leading to “millions of dollars in increased healthcare costs” and reducing investments in improving quality of care.
Novant responded with a 37-page filing saying the FTC’s case is “premised on a distorted and artificially narrow view of healthcare competition in the Charlotte area.” Most notably, Novant said, the FTC’s analysis excluded a planned Atrium hospital in Cornelius (Atrium Health Lake Norman) that will compete with the Novant facilities when it opens in 2025.
“Novant Health's purchase of these hospitals will ultimately benefit quality of care, long-term outcomes and competition,” a spokesperson for Novant told Becker’s Hospital Review. “Our commitment to purchase is, fundamentally, a commitment to restore services lost over time and to provide new, leading-edge technology that will enhance the clinical capabilities available to the greater Charlotte community.”
Richman said “it’s not a slam dunk case” for the FTC, but he’s heartened that the agency seems to be taking a more aggressive approach.
“The policy community has been working for a long time to convince policymakers this is a problem,” he said, “and I think we are finally succeeding.”
Michelle Crouch covers health care. Reach her at mcrouch@northcarolinahealthnews.org.
This article is part of a partnership between The Ledger and North Carolina Health News to produce original health care reporting focused on the Charlotte area. We make these articles available free to all. For more information, or to support this effort with a tax-free gift, click here.
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