Hospital consolidation benefits patients, report says

A national study released Thursday said growing consolidation in the hospital industry is bringing a range of benefits to patients and communities, including larger and more integrated health systems that are better able to contain costs and improve care.

Funded by the Federation of American Hospitals, a trade group representing for-profit health care providers, the report contradicts other recent studies that found mergers drive up costs.

The new study, prepared for the federation by the Center for Healthcare Economics and Policy, an arm of the advisory firm FTI Consulting, is likely to draw attention in Massachusetts and Washington, where state and federal regulators are weighing whether to block a bid by Boston-based Partners HealthCare, the state’s largest hospital and physicians network, to expand by acquiring the 378-bed South Shore Hospital in Weymouth.

The hospital federation’s report takes no position on that proposed deal and does not address the Massachusetts market specifically. But its findings echo many of the arguments Partners has put forth to support its expansion north and south of Boston, most recently in a rebuttal last Friday to a state Health Care Policy Commission recommendation that state Attorney General Martha Coakley’s office review the South Shore Hospital takeover.

In particular, the hospital federation study contends consolidation will bring the efficiencies needed to operate in a health care market increasingly shaped by government cuts, more risk-based health insurance, and rapid adoption of electronic medical records.

“When we’re looking at this trend toward consolidation, we have to look at the changing environment,” said Chip Kahn, president of the Federation of American Hospitals, whose members include investor-owned hospital companies, such as Boston-based Steward Health Care System and Tenet Healthcare Corp., which owns several Massachusetts hospitals.

“Only the larger institutions with integrated services can meet the tremendous accountability that’s required by hospitals today by Medicare, Medicaid, and private payers,” Kahn said. “We're moving into a period where electronic medical records will not only be necessary, they’ll be mandated. That takes capital and concentration, and it takes larger institutions. The freestanding hospital is just going to have a hard time sustaining itself in that environment.”

The study suggests the hospitals that join forces will be in a stronger position to improve their health care delivery and “realize operating efficiencies” by shutting down facilities that offer overlapping services, eliminating unneeded beds, and making other cost reductions.

“Consolidation may lead to realignment of services and a reduction in excess capacity as well as slower cost growth and increases in economies of scale,” the report says.

Other recent studies have reached opposite conclusions, including a 2012 report by the Cambridge-based National Bureau of Economic Research paper prepared by Robert J. Town, associate professor of health care management at the Wharton School of the University of Pennsylvania, and Martin Gaynor, professor of economics and health policy in Heinz College at Carnegie Mellon University.

That report examined hospital pricing, competition, and insurance contracts before and after mergers of health care systems across the country, from the takeover of Highland Park Hospital by Evanston Northwestern Healthcare Corp. north of Chicago to the alliance of San Francisco doctors group Brown & Tolland Physicians with Alta Bates Medical Group in the East Bay area.

“The evidence is pretty clear,” Town said . “When hospitals and providers are competing against one another and they merge, it allows them to eliminate competition, and it drives up prices. Every hospital merger case is essentially about health insurance contracting. If insurers have two or three dominant systems in their networks, they may not need the community hospitals, and those hospitals could get squeezed out.”

That conclusion is in line with the findings in a preliminary report released last month by the Health Policy Commission, a watchdog agency created by the 2012 Massachusetts cost containment law. The commission found Partners’ proposed acquisition of South Shore Hospital and a nearby physicians group, Harbor Medical Associates, would raise costs and restrict competition. A final report is expected next month.