June 15, 2013

162017_132140396847214_292624_nThere are about 5,724 hospitals in the United States presently. It is expected that about 1,000 of them will have new owners within the next seven years. In 2012, there were more than 100 hospital merger and acquisition deals (twice the number than in 2009). It will become increasing difficult for hospitals to remain independent in the future due to the effects of the Affordable Care Act, which reduces the rate of growth in Medicare payments made to hospitals and provides incentives for hospitals to form so-called accountable care organizations (“ACOs”) that are intended to coordinate patient care but will likely result in further consolidations of hospital systems.

Hospital mergers, acquisitions, and joint operating agreements among hospitals are the result of increasing pressures on hospitals to save costs and fewer patient admissions due to procedures that were once done in hospitals now being done in outside facilities (such as outpatient surgery and endoscopy clinics) and limitations placed on hospital stays by federal health programs and private health insurance. Doctors who used to admit their patients to several different hospitals in their area now may limit their hospital admissions to a specific hospital because of partnership or employment agreements with the hospital. The recent recession also had its effect because patients delayed having surgical procedures and other in-hospital treatment because when they became unemployed, they lost their health insurance coverage.

Some health care advocates initially thought that hospital consolidations would result in lower costs to patients because larger hospitals would have greater bargaining power with health insurance companies and suppliers. But the boom of hospital mergers in the 1990s raised patient health care costs between 5% and 40% in those areas of the United States where only a few hospitals dominated the geographic area (large hospital systems tend to charge higher prices in their communities where competition from other hospitals is lacking). A study in 2011 of six common hospital-based cardiac and orthopedic surgery procedures in eight states found that private health insurance companies paid 13% to 25% more for the hospital procedures where there was less competition.

While the pace of hospital consolidations in the United States increases, the U.S. Federal Trade Commission, which reviews proposed mergers, has stepped in to block hospital mergers in Toledo, Ohio and in Rockford, Illinois during the last two years, citing insufficient options for inpatient hospital services in those cities that my lead to higher health care costs. And in February 2013, the U.S. Supreme Court decided against the merger of the only two hospitals in a county in Georgia that would have resulted in a near-monopoly that would have substantially reduced health care competition and increased health care costs in the county.

Source: AARP Bulletin, June 2013.

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