Hospitals don't save much on supply chain after they're acquired, report says

Alia Paavola - Print  | 

Acquired hospitals only save about 1.5 percent annually on common expenses in the healthcare supply chain after a deal — significantly less than hospitals estimate when defending their potential merger, according to a new report by the National Bureau of Economic Research.

For the report, titled "Mergers and Marginal Costs: New Evidence on Hospital Buyer Power," researchers

examined ECRI Institute data on supply purchase orders from more than 1,200 hospitals from 2009 and 2015.

The report disclosed that across 47 top supply categories, acquired hospitals saved an average of $176,000 annually, or 1.5 percent of total supply costs. These savings were largely driven by a 2.6 percent decrease in costs for physician preference items, which are the expensive, high-tech devices that physicians have strong ties to. According to researchers, the decrease is explained by price negotiation efficiency.

"This effect is entirely explained by targets negotiating lower prices within brand, rather than changes in usage patterns, and is largest for small, local mergers," the study authors wrote.

For smaller, local mergers the costs savings on physician preference items reached up to 6.3 percent.

In comparison, the acquirer's costs increased post-merger. The average acquirer paid an average of $302 more annually on healthcare supply chain items.

While acquirers saved an average 6.4 percent on inexpensive commodities, those savings were offset by a slight boost in the expensive physician preference items for the larger system.

Overall, the report found that merger targets saved 10 percent of the amount that might be claimed in a merger justification and acquirers saved 0 percent.

The bureau reports adds to the growing body of evidence suggesting hospital mergers and acquisitions don't reduce costs, despite hospitals touting potential savings for their growing health system and their patients.

Read the full report here.

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